Annual Report and Accounts
2015
James Fisher and Sons plc is a leading service provider to all sectors of the global marine industry and a specialist supplier of engineering services to the energy industry. We employ 2,800 people across 19 countries. Our companies and services have a focus on marine related activities which operate in potentially demanding environments where specialist skills are rewarded. Through innovation and acquisition we have developed market leading businesses through our four divisions: Marine Support, Offshore Oil, Specialist Technical and Tankships.
Contents Strategic report
Governance
Financial statements
Highlights
01
Board of Directors
24
Consolidated income statement
55
Chairman’s statement
02
Corporate governance report
25
Chief Executive’s review
04
Audit Committee report
30
Consolidated statement of other comprehensive income
55
Financial review
08
Directors’ remuneration report
33
Principal risks and uncertainties
10
Directors’ report
46
Key performance indicators
12
Independent auditor’s report
52
Group at a glance
13
Business model and strategy
14
Sector review
16
Corporate responsibility
20
Consolidated and Company statement of financial position 56 Consolidated and Company cash flow statement
57
Consolidated statement of changes in equity
58
Company statement of changes in equity
58
Notes to the financial statements
59
Group financial record
96
Subsidiaries and associated undertakings
97
Notice of Annual General Meeting
99
Investor information
105
James Fisher and Sons plc
Highlights
£437.9m
£444.8m
£41.2m
£46.9m
Underlying diluted earnings per share*
68.5p
74.0p
Dividend per share
23.8p
22.0p
95%
109%
£46.2m
£49.2m
79.2p
79.2p
Revenue Underlying profit before tax*
Cash conversion Statutory profit before tax Statutory diluted earnings per share
Governance
2014 Strategic report
2015
Financial statements
s Specialist Technical, Marine Support and Tankships combined underlying operating profit up 25%; s Sharp decline in activity in Offshore Oil mitigated by swift cost reduction actions; gross margins held up well; s Cash conversion strong at 95%; s Full year dividend increased 8% to 23.8p per share; s Galloper Windfarm contract secured worth in excess of £25m. * James Fisher and Sons plc uses alternative performance measures as key financial indicators to assess the underlying performance of the Group. These include underlying operating profit, underlying profit before tax and underlying earnings per share as set out in note 2 on page 59. The narrative in the Annual Report and Accounts is based on these alternative performance measures.
© James Faulk RSwN
Annual Report and Accounts 2015
2 1
James Fisher and Sons plc
Chairman’s statement
Chairman’s statement “Underlying diluted earnings were 7% lower at 68.5 pence per share. This demonstrates the resilience of the Group’s business model in challenging times, with a sharp down-turn in Offshore Oil being mitigated by the good performance of our other three divisions.” Charles Rice, Chairman I am pleased to report that James Fisher and Sons plc finished 2015 strongly with an underlying profit before tax for the year of £41.2m (2014: £46.9m), making for a much improved second half. While this represents a 12% decline compared with 2014, the result demonstrates the resilience of the Group’s business model in challenging times. The breadth of James Fisher’s activities across the marine sector meant that three of our four divisions continued to trade well, partially mitigating the sharp down-turn in our Offshore Oil division. Group revenue for the year was marginally lower at £437.9m (2014: £444.8m). Underlying diluted earnings were 68.5 pence per share, a decrease of 7% compared with 2014. Our Marine Support and Tankships divisions showed strong profit growth. Marine Support’s performance reflected increased project revenues which were phased towards the second half as well as the initial contributions from businesses acquired earlier in the year. Tankships built further on its strong track record of recent years with costs reduced and utilisation improved. Specialist Technical delivered another strong result broadly in line with last year, making good progress with the delivery of its order book. Our Offshore Oil businesses faced progressive oil and gas industry expenditure cut-backs as the year wore on with inspection and maintenance work being deferred, particularly in Norway. This has required management to take tough action to reduce costs and, sadly, staff numbers. The division is now on a firmer footing going forward assuming at least some stabilisation of demand. The Group’s cash conversion continued to be strong at 95% with year-end balance sheet gearing remaining at a conservative 43% despite acquisition expenditure of £27.2m in the year and an increase in project related working capital. The resilience of the Group’s performance has led the Board to propose an increase in the final dividend to 16.0 pence per share compared with 14.9 pence last year, making a total for the year of 23.8 pence per share, an increase of over 8% compared with 2014.
2
Strategy The continued strong performance of the majority of the Group’s businesses together with the strength of its balance sheet has enabled James Fisher to maintain its strategic course. The Group remains focused on investing in niche businesses which operate in demanding environments where their strong marine service and specialist engineering skills are valued and rewarded. By a combination of organic investment and targeted bolt-on acquisitions, these companies have grown both in terms of service capability and international presence and have been integrated into a wider service offering for our customers. The success of this strategy is reflected not only in the profit growth of recent years but also in the increased size of contracts being won and the growing strength of the Group’s international presence. With the down-turn in Offshore Oil, the Board has given particular attention to our forward strategy this year. Overall, we believe that your Company remains well positioned to generate long-term growth. Our Marine Support businesses are global leaders in shipto-ship transfers and they have strengthened their project management capabilities both offshore and subsea. In recent years their worldwide network has grown significantly with new bases in the Asia Pacific region and in Brazil. The acquisition of Subtech in Southern Africa and increased investment in our Nigerian business were further steps forward in 2015. The division’s Subsea capabilities were boosted by the purchase of the mass-flow excavator assets of X-Subsea and our development initiative in the offshore renewables sector was strengthened by the acquisition of Mojo Maritime in May. The recently announced offshore support service contract for the construction phase of the Galloper windfarm marks a significant breakthrough in establishing James Fisher as an important service integrator to the offshore renewables sector.
Annual Report and Accounts 2015
Following the new appointments of Non-Executive Directors in recent years, there were no changes in the Board composition in 2015. During the year, an external board appraisal was carried out which concluded that the Board functions well as a unit and has a good mix of business experience to ensure that issues are examined from a broad range of perspectives. The documentation reviewed by the Board was considered to reflect an appropriate and good level of governance and process.
Financial statements
The Offshore Oil division has been a key contributor to the profit growth of recent years. We have lived through previous cyclical down-turns in the oil and gas sector before, but the speed and depth of this cycle has been greater than we expected. That said, I believe that the Group entered this cycle in a strong position. We consciously decided against chasing over-priced acquisitions in this division in the past ensuring that we entered this tougher market with a strong balance sheet. Our businesses are predominately focused on niche services to the inspection and maintenance sector and are well placed to benefit from a resumption in maintenance and development work which cannot be postponed indefinitely. Tough action was taken during the past year to cut our cost base significantly but we have been successful in retaining the experienced management teams which have helped to generate our past success. We are therefore confident that this division will bounce back and we remain committed to investing appropriately to strengthen further its niche market coverage.
The Board
Staff James Fisher has continued to benefit from a strong and stable management team both at Board level and in our operating companies. This has enabled the Group to adapt successfully to the new opportunities opening up in Marine Support and Specialist Technical and to deal with the increased scale and complexity of our international operations. In Offshore Oil, management and staff have had to face the tough task of restructuring our businesses to meet the down-turn in the oil and gas sector which has involved substantial redundancies. On behalf of the Board, I would like to thank all employees for their hard work and dedication to the continued success of the James Fisher Group.
Outlook The strong finish to 2015 and the recently announced award of the Galloper windfarm contract in Marine Support means that we start 2016 on a firmer footing. This contract will gain momentum later this year leading to a pronounced weighting of earnings to the second half. It is too early to be certain that our Offshore Oil businesses have bottomed out, but we may reasonably expect that the impact of continued adverse market conditions on this division’s earnings is likely to be limited following the restructuring work undertaken last year. Our Marine Support division looks well placed to deliver growth and Tankships continues to trade well at the levels seen last year. Prospects in our Specialist Technical businesses are strong but are linked to the timing of specific contract signings. Subject to confirmation of these, we remain positive for the year ahead and confident of the Group’s potential to provide good growth and value for our shareholders in the future. Charles Rice 1 March 2016
Annual Report and Accounts 2015
Governance
Our Tankships division has produced an excellent performance in recent years. It provides some hedge to our Offshore Oil activities in that its volumes benefit as the price of oil falls. We remain focused on investing in the management and fleet operational performance of this division to ensure that it remains a strong niche provider to the coastal shipping sector both now and in the future.
Overall, the Board believes that each of our four divisions continues to have attractive prospects based on strong market positions. The strength of our balance sheet means that the Group is well placed both to meet the organic investment needs of all four divisions and to continue with incremental acquisitions designed to reinforce our market positioning and our international network. Longer term, with its growing presence in the nuclear and renewables industries as well as the oil and gas sectors, the Group is well able to adapt to changes in the global energy mix.
Strategic report
Our Specialist Technical division is also well placed strategically. James Fisher Nuclear has been successful in becoming a recognised Tier 2 supplier to the nuclear decommissioning industry in the UK. Its growing reputation offers openings to overseas markets in the future. The company will also be able to provide services to the UK’s nuclear new-build sector once this moves forward. JFD is a world leader in hyperbaric and submarine rescue service provision to both the commercial and defence sectors. The company has benefited in recent years from strong orders for saturation diving systems from the commercial sector. We reinforced our position in this field with the acquisition of the National Hyperbaric Centre in Aberdeen in February. We expect orders in this division from the oil and gas sector to slow but prospects overall to remain strong due to increased demand for our defence related products and submarine rescue services. JFD has been successful in strengthening its position in Asia Pacific and we would expect this region to grow further. In both James Fisher Nuclear and JFD, the Group has businesses with strong market positions and good growth prospects. As project based businesses, their profits are inevitably ‘lumpy’ but this variability can more easily be absorbed by a Group with three other more broadly based divisions.
3
James Fisher and Sons plc
Chief Executive’s review
Chief Executive’s review “25% combined growth in underlying operating profit in our Specialist Technical, Marine Support and Tankships divisions shows the strength of the Group and the breadth of sectors in which our services are utilised.”
Nick Henry, Chief Executive Officer
Principal corporate objectives Deliver progressive long-term growth in underlying earnings per share 2015
68.5
2014
74.0
2013
65.6
2012
55.1
2011
48.4
2010
41.9
2009
37.0
2008 2007 2006
35.4 32.6 28.1
Deliver progressive dividend growth 2015
23.8
2014
22.0
2013
20.0
2012
17.7
2011
16.1
2010
14.7
2009
13.6
2008 2007 2006
13.0 11.4 10.0
Underlying earnings per share (p)
Total annual dividend per share (p)
s Compound annual growth over last ten years of 12%
s#OMPOUNDANNUALGROWTHOVERLASTTENYEARSOF
Results
Business model and strategy
Operating profit in the Offshore Oil division was sharply down reflecting the challenging market conditions, as maintenance expenditure was severely cut with work deferred as a result of the fall in global oil prices. Our other three divisions, Specialist Technical, Marine Support and Tankships performed strongly, increasing their combined underlying operating profit by 25%. The Group’s underlying operating margin was 10.4% (2014: 11.6%) and underlying earnings per share was 68.5p (2014: 74.0p). The degree to which the oil and gas sector postponed maintenance and modification work was greater than had been anticipated or had been experienced in previous cycles. Whilst activity levels were severely reduced, gross margins were largely sustained reflecting the specialist nature of our niche services.
The Group’s strategy over the past decade has been to grow its marine services through organic growth from its niche businesses supplemented by selective bolt-on acquisitions to broaden our service and product offering. The Group leverages its marine skills to the global market focussing on less mature markets. Our businesses are entrepreneurially led, with market leading positions through operational excellence, delivering operating margins in excess of 10%, generating cash and producing a return on capital employed in excess of 15%.
4
Our strategic goal is to deliver long-term growth in underlying earnings per share and progressive dividend growth. The compound annual growth rate over the last ten years in underlying earnings per share is 12% and the compound growth in dividends over the same period is 11%. Annual Report and Accounts 2015
s
In May the assets of X-Subsea were acquired for £14.8m. X-Subsea had gone into administration and were one of the competitors of James Fisher Subsea Excavation. This acquisition means we become a leading global operator of such specialist subsea tools which are used in the oil and gas and telecoms sectors and increasingly in the offshore renewables markets.
s
A small nuclear sources distributor was acquired in January 2015 which has been integrated into James Fisher Nuclear.
During 2015 the Group completed 5 acquisitions. s
In February, the National Hyperbaric Centre in Aberdeen was acquired for £3.5m. This broadens the Group’s offering in hyperbaric testing and consolidates JFD’s market leading position in the design, manufacture, testing and operation of hyperbaric reception facilities.
s
In May, Mojo Maritime was acquired for £3.2m. Mojo have considerable experience and reputation within the offshore renewables sector providing project management, engineering and consultancy services. Mojo will be integrated into James Fisher Marine Services, the process of which has already commenced.
Financial statements
In March, Subtech was acquired for an initial consideration of £3.3m. Subtech is based in Durban, South Africa with operations in Namibia, Mozambique, Tanzania and South Africa. The business provides a range of marine services and is well positioned in subsaharan Africa for potential growth as offshore projects are developed in the future.
Governance
s
From an operational perspective, the Group merged Testconsult, which was acquired in 2014 with Strainstall Monitoring to create James Fisher Testing Services to streamline the marketing of our load monitoring, bridge monitoring and testing services to the marine and construction sectors. James Fisher Subsea Services was created to pull together our diving and remotely operated vessel inspection businesses.
James Fisher Subsea Excavation Following the acquisition of the assets of X-Subsea in May 2015, our existing massflow excavation tools were merged to create James Fisher Subsea Excavation (JFSE). Our extensive fleet of specialised excavation, trenching and dredging tools is employed in subsea operations in the oil and gas, telecoms and renewable energy sectors. Our tools are used in challenging environments to prevent damage to pipelines, cables, structures and the environment. In September 2015, JFSE supplied its patented T4000 and Twin R2000 mass-flow excavation tools to trench and backfill two 500m lengths of a 16” pipeline lying in soft silty clay in the Manifa field offshore Saudi Arabia. The pipelines crossed through a 300m wide shipping channel. JFSE was required to provide as narrow a trench as possible, with a minimum trenching depth of 1.5m top of pipe. The project was completed on time and to the customer’s satisfaction well within the estimated number of operational hours.
Annual Report and Accounts 2015
Strategic report
The Group provides an extensive range of services to a broad range of industries. Our customers are predominantly large multinational corporations and government bodies. No customer amounts to more than 7% of Group revenue.
5
James Fisher and Sons plc
Chief Executive’s review continued
Divisional performance Underlying operating profit £m
Revenue £m
2015 Marine Support Offshore Oil Specialist Technical Tankships Common Costs
2015
193.0
164.2
19.4
14.2
63.0
104.9
7.4
22.4
129.4
121.4
13.9
13.3
10.7
11.0
20.9
23.5
52.5
54.3
7.1
4.7
13.5
8.7
28.5
19.9
2014
2015
Underlying return on capital employed %
2014
2014
2015
10.0
8.6
14.8
15.1
11.7
21.4
6.2
18.0
2014
–
–
(2.2)
(3.1)
–
–
–
–
437.9
444.8
45.6
51.5
10.4
11.6
13.5
16.5
Marine Support Revenue in Marine Support increased by 18% in the year mainly due to businesses acquired and favourable currency movements. After excluding these and the corvette vessel management contract which ended in 2014, underlying revenue growth was 3% in the year. Underlying operating profit increased by 37% to £19.4m with a strong second half as businesses acquired in the first half contributed and due to projects falling into the latter part of the year. Excluding the effect of currency movements and businesses acquired, the organic growth in underlying operating profit was 7%. Ship-to-ship transfers of hydrocarbons increased by 8% in volume terms. Despite the backdrop of declining oil prices in 2015, underlying revenue increased by around 20% compared to prior year. The markets in South East Asia and Middle East performed particularly well. Six transfers of liquefied natural gas were also completed and we remain well positioned for future growth in the medium-term in this emerging sector. Our contract in Angola for mooring and diving services performed well in 2015 but will cease early in 2016 reflecting the different market conditions and customer operational restructuring. We are currently in discussions with our customer for a managed handover of those operations. Good progress was achieved in our renewables business as we successfully completed the first phase of the project for Meygen to install a tidal array in the Firth of Forth. Our acquisition of Mojo Maritime in May 2015 broadened our expertise and experience in tidal and offshore wind energy. We continued to provide services to the Offshore Transmission (OFTO) operators in 2015. The recent announcement of the contract with RWE to provide an integrated range of marine services to the Galloper windfarm project demonstrates the market potential in this sector. Worth in excess of £25.0m, the contract will commence in the second quarter of 2016 and will progressively ramp up during the year and into 2017. The project will also utilise our Offshore Wind Management System which has been developed as an operational portal for the renewables industry.
6
Underlying operating margin %
Our acquisition of the assets of X-Subsea in May further expanded our mass-flow excavation business and we now have bases in key locations in the UK, North America, the Middle East and Singapore. This business performed well in the second half winning pipeline and cable burial and retrieval projects in the renewables and oil and gas sectors. Testconsult, which was acquired in 2014, was merged during the year with Strainstall Monitoring to form James Fisher Testing Services (JFTS). JFTS saw continued growth in the Middle East and Malaysia. In the UK our Bridgewatch® data monitoring and asset management system was installed onto the new Forth Bridge during 2015 which will provide real-time information on the performance of the crossing over its lifetime. When the current Forth Bridge was closed after a crack was discovered in December 2015, JFTS rapidly deployed Bridgewatch® to provide information of the effects of wind and traffic loading on the structure. This information helped the decision to re-open the bridge two weeks earlier than planned.
Offshore Oil Offshore Oil revenue was 40% lower as inspection, repair and maintenance work was deferred more than expected following the sharp decline in oil prices. The scale of the reduction in maintenance activity and the length of the lull in operations were greater than had been experienced in previous cycles. The Norwegian market, which had previously represented a quarter of the divisional revenue, was the most affected with a 37% reduction in revenue. The subsea market held up better owing to the longer lead time of subsea projects but fewer projects were initiated during 2015 which will affect 2016. The degree of impact varied. Activity in the Middle East, Asia and Brazil were less affected, whereas West Africa saw a far greater decline in activity. The UK North Sea saw sharp declines later in the year but this sector represented a small proportion of the division. Despite the tough market conditions, gross margins held up well and were only slightly below prior year. This reflects the specialist nature of our niche services. We took swift action
Annual Report and Accounts 2015
2014 had seen one-off product sales of £12.4m by Scantech Offshore. If this is excluded, divisional revenue was 28% lower. Whilst underlying operating profit reduced by £15.0m in the year, the underlying operating margin remained above the Group’s benchmark at 11.7% (2014: 21.4%).
Specialist Technical
Delays in the procurement processes for contracts in the defence sector dampened growth in 2015 but the company remains well placed for further contract awards in 2016 which will drive future growth. In February 2015 the acquisition of the National Hyberbaric Centre (NHC) in Aberdeen was completed for an initial cash consideration of £3.5m. NHC provide hyperbaric reception, testing and training services to the subsea industry and this further consolidates our industry leading position to the global market.
On 3% lower revenue, our Tankships division increased profits by 51% as vessel utilisation increased and operating costs were reduced compared to prior year. Volume of product transported was slightly higher and on average these cargoes were transported over longer distances which improved vessel utilisation. The number of vessels in the fleet was unchanged in the year and we continued to benefit from a contract for two of our vessels which is expected to continue through the first half of 2016. Operating costs benefited from the renegotiation of charter rates for vessels introduced to the fleet in 2004/2005. The company continues to have an excellent operational safety record, which is a credit to all our officers and crews at sea and to the support team ashore. During the year the company was awarded the Operational Excellence Award at the annual Tanker Shipping and Trade Conference. Volumes of clean petroleum product transported through our Plymouth port were 3% higher than 2014.
Operational Excellence Award James Fisher Everard (JFE) has been transporting clean petroleum products around the UK and Irish coasts successfully for over 50 years. Its fleet of 17 vessels carry fuels such as petrol, diesel, kerosene and gasoil from refineries and terminals to coastal storage facilities in primarily 4,000 metric ton (mt) parcels. For many remote locations the JFE ships are the only reliable and cost effective means of supply such as some of the Scottish Islands and Channel Islands. Safety and the environment are major concerns to JFE and in 2015 we transported around 3.3 million mt of product on over 900 voyages with no Lost Time Injuries to our crew and no spillage of product to the environment. Coastal shipping is a tough and unrelenting business which is strictly regulated. JFE operates well beyond the required safety standards with high quality vessels and very experienced officers. Their excellent safety record was marked in 2015 when JFE won the Operational Excellence Award at the annual Tanker Shipping and Trade Conference in London. The Award acknowledged the company’s commitment to operational excellence and continuous improvement, whilst operating in the challenging coastal waters in North West Europe.
Annual Report and Accounts 2015
7
Financial statements
JFD made good progress on a 24 man saturation diving system which will be installed onto a dive support vessel in 2016 to service Northern Europe and on an 18 man system to be installed on a vessel being built in Singapore and which will be completed in Baku, Azerbaijan in 2017. A third smaller system was commenced in the latter part of the year. Our service contracts to provide submarine rescue services for the UK, Singapore and Australia continued to perform well.
Tankships
Governance
Revenue grew by 7% and underlying operating profit by 5% in Specialist Technical as our diving equipment, defence and nuclear decommissioning businesses delivered well against a strong order book.
Our Nuclear business increased revenue by 13% with strong growth in decommissioning. This included the first phase of a purpose built nuclear waste store for Sellafield. Revenues for non-destructive testing services were below the previous year as a result of a reduction in workflow from the Magnox plants and our aerospace customers. The company has begun to see revenue from projects outside of the UK and has invested in business development for international markets. The business has continued to broaden the size and scope of projects that it bids for and is well placed for further growth in 2016. A small nuclear sources distributor was acquired in early 2015 for £2.2m which has performed well following its integration into the division.
Strategic report
to reduce costs and have reduced headcount by 25% since December 2014. Redundancy costs of £1.2m were incurred in the year and on-going annual costs have been reduced by £3.3m.
James Fisher and Sons plc
Financial review
The Group is exposed to fluctuations in exchange rates, primarily in respect of US Dollar cash flows and the translation of business results from Norwegian Kroner to UK Sterling. The table below sets out average exchange rates in 2015 and 2014:
Financial review
2015 US Dollar Norwegian Kroner
2014
% change
1.53
1.65
(7)%
12.35
10.44
+18%
A significant proportion of revenue is invoiced in US Dollars and the Group benefits from the US Dollar strengthening against UK Sterling and conversely a weaker US Dollar has an adverse impact. Forward currency contracts are entered into to mitigate the risk of an adverse impact on profits for a portion of expected US Dollar net cash flows. The Group does not hedge translation exposure where the local business records its transaction in local currency. The net impact of changes in currency rates compared to 2014, after forward contract hedging, was to increase underlying operating profit by £3.2m.
Underlying profit before taxation and net finance charges
Stuart Kilpatrick, Group Finance Director The financial results in 2015 reflected challenging conditions in Offshore Oil markets but good progress was achieved in our other divisions. As anticipated, underlying operating profit in the second half was slightly below 2014 and 28% higher than in the first half of 2015. For the year, underlying operating profit at Offshore Oil was reduced by £15.0m compared to previous year but increases in all of the other divisions of £9.1m limited the shortfall in the Group’s underlying result against 2014 to £5.9m. Revenue for the year was 2% lower than 2014 at £437.9m (2014: £444.8m). In 2014, Offshore Oil, which primarily hires equipment and engineers into the inspection and maintenance market, sold equipment into the South American market for £12.4m which did not recur in 2015. The marine support contract to manage three Corvette warships, which contributed revenue of £8.5m in 2014, ceased when the vessels were sold to the Indonesian Navy. Underlying revenue in Offshore Oil was 28% lower than in 2014 which was partly offset by the other businesses increasing by 2%. Businesses acquired added £30.4m to revenue in the year and favourable currency rates added a further £6.4m. The Group’s underlying operating margin reduced from 11.6% to 10.4% due to the profit reduction in Offshore Oil. Each of our four divisions reported an underlying operating margin in excess of 10% in the year.
Revenue bridge 6.4 30.4 12.4 8.5 6.2
444.8
437.9
Net finance charges comprise interest payable and similar charges on the Group’s borrowings, notional interest on legacy defined benefit pension schemes and non-cash interest in unwinding the discount on contingent consideration for businesses acquired. The total net finance charge for the year was £0.4m lower than previous year at £4.3m (2014: £4.7m). Interest payable on bank borrowings was £0.1m higher as increased borrowings offset a reduced overall cost of borrowing. Notional pension interest was £0.2m less than prior year due to a lower net deficit at the start of the year and the unwinding of the discount on contingent consideration was £0.3m lower following a provision reduction in 2014. Underlying profit before taxation was 12% lower at £41.2m (2014: £46.9m).
Taxation The effective tax rate on underlying profit before tax was 14.3% (2014: 19.2%) The reduction compared to last year is due to tonnage tax relief on the profits of its Tankships operation which were 16.2% (2014: 9.1%) of underlying operating profit in 2015. Over provisions in prior years have been reduced as estimates of cash tax payable were revised downwards due to greater certainty particularly with regards to overseas jurisdictions. This reduced the effective tax rate by three percentage points. In addition, UK corporation tax rates reduced by 1.25 percentage points compared to 2014. The Group’s tax policy has been approved by the Board and shared with the UK tax authorities. Whilst the Group has a duty to shareholders to seek to minimise its tax burden, its tax policy is to do so in a manner which is consistent with its commercial objectives, meets its legal obligations and its code of ethics. We aim to manage our tax affairs in a responsible and transparent manner and with regard for the intention of the legislation rather than just the wording itself.
29.0
2014
8
Offshore Oil equipment sales
Corvettes
Offshore Oil
Growth from other divisions
Acquisitions
Currency
2015
Annual Report and Accounts 2015
Separately disclosed items
2015 £m
2014 £m
Acquisition related (charges) and income:
Loss on disposal of businesses
(1.3) (1.2) 8.5
(0.7)
Underlying operating profit
45.6
51.5
Depreciation & amortisation
23.2
21.1
Underlying ebitda
68.8
72.6
Working capital
(22.7)
(11.9)
(2.7)
(3.9)
Pension/other Operating cash flow
43.4
Interest & tax
(12.2)
(9.1)
Capital expenditure
(20.2)
(28.6)
Acquisitions
(27.2)
(12.2)
Dividends
(11.4)
(10.3)
(1.0)
Purchase of ESOT shares/other
4.1
Net outflow
(1.0) 5.0
2014 £m
–
56.8
(3.9)
(4.6)
(31.5)
(8.0)
Net borrowings at start of period
(62.3)
(54.3)
Net borrowings at end of period
(93.8)
(62.3)
2.4
Net cash capital expenditure in the year was £20.2m (2014: £28.6m) reflecting reduced spend in the Offshore Oil division but continued investment for growth in Specialist Technical and Marine Support. Cash outflows on businesses acquired amounted to £27.2m as the Group invested in five businesses to bolt-on to its existing marine service activities.
The Group disposed of two small businesses in the year with revenue of £1.2m, resulting in a book loss of £1.0m.
Net borrowings increased in the year by £31.5m to £93.8m (2014: £62.3m) as a result of the businesses acquired and the working capital outflow. At 31 December 2015, the ratio of net borrowings (including guarantees) to underlying EBITDA was 1.4 times (2014: 1.0 times) and the Group had £67.4m (2014: £81.4m) of undrawn committed banking facilities. Net gearing, the ratio of net debt to equity, was 43% (2014: 31%).
Earnings per share and dividends
Pensions
Underlying diluted earnings per share decreased by 7% to 68.5p per share (2014: 74.0p) which was less than the change in underlying profit before taxation due to favourable variances on net finance expense and taxation. Diluted earnings per share after separately disclosed items was unchanged at 79.2p per share (2014: 79.2p).
As previously flagged, the trustees of an industry-wide Merchant Navy Ratings Pension Fund (MNRPF) have been given permission by the High Court to extend the requirement for deficit contributions beyond current employers to both current and past employers. During 2015, the trustees notified employers of their potential liability and related payment plan proposals. The Group has recognised through the Consolidated Statement of Other Income a liability of £8.6m as at 31 December 2015 and is in discussion with the trustees to finalise contribution arrangements. The Group is also liable for contributions to a similar industry-wide scheme, the Merchant Navy Officers Pension Fund (MNOPF) and following its triennial valuation as at March 2015, no additional contributions over the current payment plan were requested by the trustees.
The Board are recommending an 8% increase to the total dividend for the year to 23.8p per share (2014: 22.0p). A final dividend of 16.0p per share (2014: 14.9p) will be paid, subject to approval at the Annual General Meeting, on 6 May 2016 to shareholders on the register on 8 April 2016. Dividend cover based on the ratio of underlying earnings per share divided by the dividend per share was 2.9 times (2014: 3.4 times).
Cash flow and borrowings Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) decreased by 5% due to lower earnings in Offshore Oil. The Group’s cash conversion, the ratio of underlying operating cash to underlying operating profit was 95% (2014: 109%). The working capital outflow of £22.7m (2014: £11.9m) was adversely impacted by significant project work spanning the year end and receipts from a major customer being deferred into 2016.
During the year, the Group made cash contributions to these schemes and its own shore staff scheme of £3.5m (2014: £4.7m). Total defined benefit net liabilities were £27.0m (2014: £21.8m) reflecting the addition of the MNRPF liability less cash contributions in the year.
9
Financial statements
Costs incurred on acquiring businesses increased due to more businesses being acquired in 2015 and greater complexity on overseas acquisitions. Contingent consideration was provided on the acquisition of Subtech in March 2015 with an element based on 2015 earnings and an earn-out for the two year period ending 31 December 2017. The provision was adjusted at 31 December 2015 resulting in a credit to the income statement of £5.0m as the 2015 target was not achieved. A further £3.5m relates to Divex, which was acquired in 2013, where some specific saturation diving system orders have fallen outside of the qualifying period.
Annual Report and Accounts 2015
Governance
Costs incurred on acquiring businesses Amortisation of acquired intangible assets Adjustments to contingent consideration provisions
2015 £m
Strategic report
The Directors’ consider that the alternative performance measures described in note 2 assist an understanding of the underlying trading performance of the businesses. These measures exclude separately disclosed items which comprise gains or losses on the sale of businesses, material impairments and acquisition related charges and income and are set out below:
Summary cash flow
James Fisher and Sons plc
Principal risks and uncertainties
Principal risks and uncertainties The Group’s risk management framework
s
The Board is ultimately responsible for the management of risk in the Group. Our internal control and risk management framework is regularly monitored and reviewed by the Board and the Audit Committee and comprises a series of policies, processes, procedures and organisational structures which are designed to ensure that the level of risk to which the Group is exposed is consistent with the Board’s risk appetite and the Company’s strategic objectives.
The trading company managing directors complete a risk management review questionnaire on an annual basis which is a self-assessment of operational controls and compliance with laws and regulations relating to their business. This enables business managers to identify risks and focus on mitigating strategies. The reviews are submitted to the Company Secretary for analysis and reporting to the Board.
s
The Group Risk Committee meets quarterly and is chaired by the CEO with representation from functional heads including finance, human resources, legal and company secretarial, information services, insurance and internal audit. The minutes of the Risk Committee are reported to the Board.
The Board determines the Group’s policies on risk, appetite for risk and levels of risk tolerance and specifically approves: risk management policies and plans; significant insurance and/or legal claims and/or settlements; major acquisitions, disposals and capital expenditures; and the Group budget, forecast and three year plan. The Board has put in place a documented organisational structure with strictly defined limits of authority from the Board to operating units that have been communicated throughout the businesses and are well understood by the Executive Directors, the central management team, functional and business leaders who have delegated authority and specific responsibility for ensuring compliance with and implementing policies at corporate, divisional and business unit level. Central functions and operating units are each required to operate within this control environment and in accordance with the Group’s established policies and procedures which include ethical, anti-bribery and corruption, treasury, employment, health and safety and environmental policies and procedures. The Group’s trading companies are supported by centralised finance, treasury, taxation, internal audit, legal and company secretarial, human resource and payroll and information systems functions: the functional heads report to a nominated Executive Director. The Board retains an oversight role, receives regular reports on key issues and has a schedule of matters specifically reserved to it for decision thus ensuring that it maintains full and effective control over appropriate strategic, investment, financial, organisational and compliance issues. This schedule is subject to review by the Board on an annual basis.
Business Reporting and Performance Reviews The Group operates an annual budgeting process and produces quarterly forecasts which are reviewed and approved by the Board. Monthly results are compared with budget and prior year and individual business reviews are conducted quarterly which include a review of financial results. The businesses also compile a three year strategic plan. The Executive Directors hold quarterly board meetings with each business units to discuss strategy, financial results and forecasts, business needs and the management of risks facing the business.
Identifying and Monitoring Material Risks Material risks are identified and monitored as follows: s
A risk evaluation process commences in the operating companies with an annual exercise to identify the significant operational and financial risks facing the business. This is supported by a self-assessment internal control review questionnaire completed by each operating company and submitted to the Group Head of Internal Audit. This process is robust and challenging, ensures that risks are identified and that management have adequate internal control systems in place to report any weaknesses that require management attention. The results of the analysis are utilised to determine future areas of internal audit focus.
Risk Management Systems The key features of the Group’s risk management systems are as follows: s
Each trading business is required to maintain an up to date risk register, which is reviewed at each business board meeting, identifies key risks and assesses the likelihood and impact of each risk before and after mitigation measures are taken.
s
A ‘risk score’ is determined for each risk based on the likelihood of each identified risk arising and the potential impact on the business of an adverse outcome. The risk score before and after mitigation is reviewed at business and Group level.
s
On an annual basis the risk registers are submitted to the Company Secretary and Head of Internal Audit for analysis. This analysis is considered by the Board when determining the Group’s principal risks and the areas of internal audit focus for the forthcoming period.
s
The risk assessments are summarised and presented to the Board who evaluate the principal risks of the Group by reference to the strategy and operating business environment.
10
Annual Report and Accounts 2015
Principal risks and uncertainties
Risk description and potential impact
Management and mitigation
Project Delivery As the Group grows, wins large contracts and operates in more geographies, the failure to deliver a major contract on time, within budget or in accordance with its terms or customer requirements could have potentially significant adverse financial and reputational consequences and could potentially result in litigation.
The Group has established processes for contract reviews and utilises professional expertise to minimise risk in contract negotiation. All major contracts are referred to the Board for approval and limits of authority are designed to ensure that contracts are reviewed and approved at appropriate levels prior to commitment. Major tenders and contracts are subject to on-going review at levels and frequencies appropriate to performance and potential risks.
Our strategy to attract and retain talent includes graduate recruitment, identifying and developing future leaders, regular appraisals, formal and informal training plans, succession planning, and appropriate remuneration incentives including the extension of share schemes to key individuals. We aim to develop talent from within. Succession and talent development is regularly discussed at Board and trading company level. There are several management development programmes in place for individuals who have been identified as potential senior managers. These programmes are defined to help develop and grow the capabilities and behaviours required of senior managers so that we have potential successors for key business roles. These strategies are designed to retain and motivate individuals and to ensure their commitment to the success of the business.
Financial statements
Reputational risk from operations The Group’s success is dependent on conducting its business safely and in accordance with all applicable regulatory requirements. Our businesses are reliant on ensuring that a good reputation is maintained with their customers. An adverse operational incident would potentially damage the Group financially and commercially and the impact would be heightened if it failed to react promptly or deal with it effectively.
The Group places a particular emphasis on the health, safety and security of its operations which are continually monitored and reported to the Board. We have policies and processes to safely and compliantly manage our operations, to protect our employees and others and to react appropriately to operational incidents.
Financial The Group is exposed to a variety of financial risks which could adversely affect the financial performance of the Company. The risks include interest rate, foreign exchange and credit risk.
The Group’s centralised finance function oversees all key strategic finance matters and is responsible for treasury, tax, foreign exchange and funding requirements. This includes the day to day management of the Group’s liquidity, interest rate and foreign exchange rate risks.
An increase in interest rates or change in exchange rates or credit restriction would have a financial impact.
The Group maintains relationships with a small key group of banks and reviews its funding mix and requirements at each Board meeting. The Board discusses macro-economic issues and their potential impact on each of these risks. Forward currency contracts and interest rate swaps are entered into to mitigate the risks of adverse currency or interest rate movements. The Group enters into bilateral facilities to spread its maturity profile and aims to maximise the term of its revolving credit facilities.
Energy markets The Group has significant operations in the oil and gas sector and business operations in other energy sectors such as nuclear and renewables. A marked fall in oil and gas prices leads to reduced investment in this market and this can affect demand for the Group’s products and services and impact financial performance.
The Group has exposure across the energy sector and to a broad range of end markets and differing geographies. This together with the maintenance of close relationships with key customers and suppliers helps to mitigate the potential impact of market risks in the energy sector. Specifically with regard to the oil and gas sector, the Group has limited exposure to the exploration phase and seeks longer term contracts for inspection, repair and maintenance work.
Operations in emerging markets The Group has increasing activities in overseas emerging markets and key growth economies which may be in association with local shareholders. This together with legislative restrictions, embargoes, sanctions and exchange controls all has the potential for increasing the Group’s financial and governance risk exposure. Any significant failure to comply with laws or regulations could lead to liabilities and penalties.
The structure of and reporting lines for our overseas operations and the relations with third parties are continually reviewed as businesses develop to ensure an appropriate form of command and control is maintained, dependent on the particular operating environment and the nature and size of the business. The Group allocates additional resource to areas of higher risk and has enhanced its internal audit reviews for overseas businesses which are supported by external audit companies, where appropriate. Processes are in place which are designed to ensure that all businesses operate in accordance with legislative restrictions, embargoes, sanctions and exchange controls and the Group’s policies and applicable laws.
Cyber security Attempts to cause harm to the Group and its businesses via digital channels could lead to theft, fraud, interruption to business and damage to our reputation.
Annual Report and Accounts 2015
Governance
Recruitment and retention of key staff James Fisher has strong and experienced management teams in its operational businesses and depends on the skills, experience and competence of all of its people to drive the business forward in established and new markets. The Group’s success in delivering its strategic objectives depends on recruiting and retaining the right people in all areas of our business and planning succession in key leadership positions. The failure to attract, retain and develop personnel of the requisite calibre could have an adverse impact on the business.
Strategic report
The most significant risks that the Board considers may affect our business based on the risk evaluation process described above are listed below. These risks are similar to last year except for the addition of cyber-security. The Group’s decentralised business model and geographical spread helps to mitigate the impact of each principal risk.
The Group’s IT systems are defended through the use of software protection and processes which are regularly reviewed and tested. These defences include gateways, firewalls and threat detectors. IT security information and updates are reviewed on a regular basis and accounting and banking controls are regularly appraised to ensure they are appropriate, up to date and comply with recommended practice.
11
James Fisher and Sons plc
Key performance indicators
Key performance indicators
Underlying operating profit (£m)
45.6
2015
51.5
2014
46.6
2013 41.2
2012 36.1
2011
2015
Operating margin (%)
10.4 11.6
2014 2013
11.3
2012
11.3
2015
Underlying profit before tax (£m)
41.2 46.9
2014 41.4
2013 35.0
2012
2015
Return on operating capital employed (%)
13.5 16.5
2014
16.9
2013
15.3
2012 13.0
2011
109
2014
134
2013
132
2012 105
2011
2015 31
2013
30
Cash conversion is defined as the ratio of operating cash flow to underlying operating profit. Operating cash flow is defined as underlying operating profit, adding back depreciation and amortisation and adjusting for net movements in working capital, pension payments and for the cash profits of associates. The Group’s cash conversion was 95% in 2015 (2014: 109%).
Gearing (%)
43
2014
Return on operating capital employed is defined as underlying operating profit divided by average operating capital employed. Operating capital employed comprises tangible fixed assets, intangible fixed assets, operating debtors net of creditors, less provisions. The Group’s post tax return on operating capital employed (note 2) was 13.5% (2014: 16.5%) at 31 December 2015.
Cash conversion (%)
95
2015
12
Underlying profit before taxation is after interest and before separately disclosed items and related taxes. The compound annual growth rate in underlying profit before taxation over the last five years is 11%.
30.0
2011
2011
Operating margin is the ratio of underlying operating profit to revenue. The Group’s operating margin in 2015 was 10.4% (2014: 11.6%).
11.7
2011
2012
Underlying operating profit is after adjusting for separately disclosed items and is the underlying profit from operations before interest. The Group has increased underlying profit by a compound rate of 10% over the last five years.
Gearing is defined as the ratio of net borrowings to net assets. The gearing of the Group at 31 December 2015 was 43% (2014: 31%). 39 75
Annual Report and Accounts 2015
James Fisher and Sons plc
Group at a glance
Geographical locations Strategic report Governance Financial statements
Main Offices Other Offices
Revenue by geography
Revenue by division
Profit by division
2015
2015
2015
12%
20% 39%
15% 44%
30%
28%
27% 14%
41%
14%
16%
UK
Marine Support
Marine Support
Europe
Offshore Oil
Offshore Oil
Middle East, Africa & the Americas
Specialist Technical
Specialist Technical
Tankships
Tankships
Asia Pacific
Annual Report and Accounts 2015
13
James Fisher and Sons plc
Business model and strategy
Business model Our business model is based on high quality niche businesses offering a range of marine services predominantly to large multinational customers and governments globally.
High quality marine services
Entrepreneurial culture
Our businesses are linked together by a set of common marine service skills.
The Group has a decentralised management structure and encourages managers to be responsible for making timely decisions in the best interests of their businesses but with the back-up and resources of a larger group.
The Group provides solutions to customers through the provision of specialist equipment which is coupled with the detailed knowledge of our people, who are industry experts in their specific operations. The equipment is often designed and assembled by our people, who then operate it and provide through-life support to our customers. Whilst our expertise originates in the UK, the Group provides these solutions and support internationally and focuses on servicing less mature markets. Addressing such customer demands for quality and improvement requires the continuous development of innovative products to maintain market leadership in our areas of service.
14
Our businesses have strong, experienced management teams that are rewarded according to the success of their businesses. An entrepreneurial culture means that decisions are made quickly and in response to changes in the market and the competitive environment.
Buy and build Acquisitions are a key part of our business model which broaden our product range and service portfolio, deepen our management pool and potentially extend our geographical coverage for our large multinational customers. James Fisher has acquired a number of owner managed companies with specific expertise. The Group’s global reach has facilitated the internationalisation of operations of these companies. Subsequent strong organic growth has been achieved through investment in people, working capital and equipment.
Annual Report and Accounts 2015
Strategy Strategic report
The Group’s strategy is to leverage marine skills in areas of specialist expertise to a global market.
Our focus on operational excellence requires that our businesses are: s
cash generative;
s
have operating margins in excess of 10%; and
s
provide returns on capital employed in excess of 15%.
Saturation Diving Systems In 2015, JFD designed and assembled an 18 man saturation diving system for Keppel Singmarine. The system will be installed on a new subsea construction vessel, the SCV Khankendi, which is being built at a shipyard in Baku, Azerbaijan. Once complete the SCV Khankendi is intended for the Shah Deniz Project in the Caspian Sea, some 30 miles south of Baku. JFD will oversee the installation of its equipment and support commissioning. Diving Bells and Hyperbaric Lifeboats are in build and due to be delivered in 2016.
Annual Report and Accounts 2015
15
Financial statements
Bolt-on acquisitions broaden the range of products and services that we provide. Our acquisition strategy has focused on niche businesses with a strong entrepreneurial culture which fit well with our operating style and growth strategy. As a cash generative Group with a strong balance sheet, businesses are usually acquired using existing cash or borrowing resources. The businesses acquired have a good track record and typically need additional resources for their next growth phase. Where business bolt-on to existing businesses we seek to optimize shared back office functions, purchasing opportunities and cross-selling within the Group.
Governance
The Group has a range of entrepreneurially led businesses which are market leaders in their specific operational niche. Our businesses operate in demanding environments where strong marine service and specialist engineering skills are valued and rewarded. We seek to provide solutions to our customers in the less mature and fast growing markets where they value trusted and quality suppliers. Our niche operations are integrated into a wider service offering to a diverse range of end markets.
James Fisher and Sons plc
Sector review
Sector review Marine Support Revenue (£m)
Underlying operating profit (£m) 193.0
2015 164.2
2014
171.3
2013
150.4
2012 2011
112.7
Return on capital employed (%) 19.4
2015 14.2
2014
18.3 16.1 15.8
2011
15.1
2014
2013 2012
14.8
2015
29.4
2013 21.7
2012
22.4
2011
Sector Our Marine Support businesses provide products, services and solutions to the global marine industry. Our services are supplied to a range of end market sectors including marine, oil and gas, ports, construction and renewables.
Our principal businesses Operations
End markets
Locations
Fendercare
Marine products and services, shipto-ship transfers, diving services, marine consultancy
Marine, oil and gas, renewables, defence
UK, Singapore, Australia, UAE, Brazil, Nigeria
JF Testing Services
Products and services that measure and monitor structural stress, instrumentation and materials testing
Marine, oil and gas, renewables, civil and construction
UK, UAE, Qatar, Singapore, Malaysia
JF Marine Services
Integrated marine service contracts
Marine, oil and gas and renewables
UK
JF Subsea Excavation
Mass-flow excavation services
Oil and gas and renewables
UK, Mexico, Singapore
JF Subsea Services
Diving and marine services
Renewables, oil and gas and marine
UK
Subtech
Marine services and diving
Oil and gas, marine, construction
South Africa, Mozambique and Namibia
Market drivers Fendercare is the leading provider of pneumatic floating fenders and other mooring equipment to the global marine industry. The sectors serviced are commercial shipbuilding, ship refurbishment, defence, port developments and the oil and gas market for project applications.
The market drivers for JF Testing Services are new projects in the marine, oil and gas, infrastructure and renewables sectors, where our niche offering and innovative products and services provide a competitive advantage.
Fendercare is also the leading provider of ship-to-ship services for the transfer of crude or refined oil, liquefied natural gas or bulk cargoes. The demand for these services is driven by the volume of oil trading between oil majors and independent traders and also by production where local port infrastructure is unable to accommodate large tankers.
James Fisher Marine Services delivers an integrated service offering that utilises the wide range of marine skills across the Group to provide added value to its customers. Demand for its services is driven by the operation and maintenance activities in the marine, oil and gas and renewables sectors.
JF Testing Services is the leading provider of strain gauges to the marine industry, which are used in a range of applications such as mooring systems on ships and in ports as well as being used to monitor structural integrity of infrastructure in the construction and transport sectors. The sectors serviced encompass new shipbuilding, ship refurbishment and life extension, port developments, and projects for the oil and gas market. It is also a leading provider of specialist testing and monitoring services to the construction and maintenance sectors and designs and manufactures testing and monitoring equipment, supporting customers worldwide.
16
James Fisher Subsea Excavation specialises in providing mass flow excavation tools and services to cover or uncover subsea pipelines or cables. Demand for its services is driven by global cable and pipeline projects primarily in the oil and gas, renewables and communication sectors. James Fisher Subsea Services is a specialist in providing reliable remotely operated vehicle (ROV) systems and diving personnel for underwater surveys, inspections, construction and diver support, in the offshore oil and gas, hydro power, marine and renewables industries worldwide. Subtech provides a range of marine services to the sub-saharan Africa region. Demand for its services is driven by port construction projects, diving projects and support for the major salvage companies. Annual Report and Accounts 2015
Offshore Oil 2015
Underlying operating profit (£m) 63.0
2015 104.9
2014 99.2
2013
83.4
2012 2011
71.2
Return on capital employed (%)
7.4
2015 22.4
2014 19.7
2013 17.1
2012 12.8
2011
Strategic report
Revenue (£m)
6.2 18.0
2014 16.4
2013 15.0
2012 12.1
2011
Governance
Sector Our Offshore Oil businesses supply a range of services and equipment to the global oil and gas industry. This includes the design and engineering of specialist equipment, platform maintenance and modification, well testing support, subsea operations and maintenance services. James Fisher is also established as a world leader in artificial lift specialist completion technology and innovative accessory tools for electrical submersible pumps.
Financial statements
Our principal businesses Operations
End markets
Locations
ScanTech AS
Design and engineering of specialist equipment, platform maintenance and modification, well testing support and subsea operations
Oil and gas
Norway
Scantech Offshore
Provides products and services to well testing companies
Oil and gas
UK, UAE, Brazil, Australia, Malaysia
RMSpumptools
Artificial lift specialist completion technology and innovative accessory tools for electrical submersible pumps
Oil and gas
UK, UAE
Fisher Offshore
Provides range of lifting equipment and services to the marine, offshore and subsea industries
Oil and gas
UK, Malaysia
Market drivers ScanTech AS is Norway’s leading provider of ATEX (ATmosphères EXplosives) products and support services to the Energy sector. Its products and services are supplied to the Norwegian oil and gas market and which are used for platform maintenance, well testing or specific projects. Equipment is designed and certificated to the Norsok standard. The driver for the business is the operation and maintenance spend on offshore rigs in the Norwegian sector. Scantech Offshore is the leading provider of air compressors, steam generators, heat suppression equipment and qualified personnel for the well testing market worldwide. It rents equipment to the large multinational oil service companies along with qualified personnel to operate the equipment. The driver of the business is the operation and maintenance spend on offshore rigs around the world.
Annual Report and Accounts 2015
RMSpumptools is a world leader in artificial lift specialist completion technology and innovative accessory tools for electrical submersible pumps. RMSpumptools supplies products to the global downhole oil and gas market which improve the productivity of wells utilising electrical submersible pumps. Fisher Offshore provides winches, hoists, marine cranes and subsea hydraulic tooling to the oil and gas and marine sectors. Its market driver is maintanence, inspection and repair demand and subsea projects. Offshore Oil operates in niche areas of the oil and gas services market. These are predominantly focused on the operation and maintenance phases of the market with limited exposure to exploration expenditure.
17
James Fisher and Sons plc
Sector review continued
Specialist Technical Revenue (£m)
Underlying operating profit (£m) 129.4
2015
121.4
2014 81.9
2013 2012 2011
60.8
2015
13.9
2015
2014
13.3
2014
8.5
2013 5.5
2012
52.4
Return on capital employed (%)
23.5 13.6
2013 6.4
2012 6.9
2011
20.9
5.4
2011
Sector Our Specialist Technical businesses supply diving equipment and services, submarine rescue products and support services and engineering solutions to the UK nuclear decommissioning market. The submarine rescue market is a small niche with a national navy either having its own capability or relying on other countries. Other subsea services provided to the defence sector include diving equipment and special operations vessels. The Group also supplies saturation diving systems which are installed onto dive support vessels and support deep subsea diving activities. JF Nuclear provides engineered solutions which operate in hazardous environments in the nuclear industry.
Our principal businesses Operations
End markets
Locations
JFD
Design, supply and servicing of diving and subsea equipment, submarine rescue and special operations services
Defence, commercial and defence diving, hyperbaric and submarine rescue
UK, Australia, Singapore, Sweden
JF Nuclear
Engineered solutions in remote handling, non-destructive testing and calibration services
Nuclear decommissioning
UK
Market drivers JFD is the world’s leading supplier of saturation diving systems and related diving equipment. Its end markets are oil and gas and defence. Saturation diving systems are both fixed and portable. Fixed systems are usually built into dive support vessels (DSV). JFD provides the equipment and the follow-on consumables, support and maintenance to the DSV operator. The construction and replacement of DSVs drives new build saturation diving systems which in turn drives ancillary service and product spend. JFD’s defence market is based on service, repair and calibration on-going requirements and on projects requiring specialist diving equipment.
JF Nuclear provides engineered products and services to the nuclear industry both in the operation of nuclear power plants and decommissioning. Its products and services operate in hazardous environments. The business provides instrumentation, nondestructive testing, calibration and digital radiography to the nuclear, aerospace and process industries. The market drivers for JF Nuclear are the demand for its products, services and lifetime support from the UK decommissioning industry, radiological calibration
requirements and projects within the aerospace, process and defence industries.
JFD is also the world leader in submarine rescue services. It encompasses the ability to design, deliver and operate submarine rescue vehicles. It has long-term service contracts with navies in a very niche area of capability. The driver is the tendering of defence projects for provision of the equipment, which can then lead to longer term service contracts to operate the service. We currently provide submarine rescue services to the UK, Singaporean and Australian navies. The business also provides swimmer delivery vessels to the special operations markets.
18
Annual Report and Accounts 2015
Tankships 2015 2014
Underlying operating profit (£m) 52.5
4.7
2014
2013
61.3
2013
2012
61.8
2012
66.8
2011
7.1
2015
54.3
2011
Return on capital employed (%)
3.2
28.5
2015 19.9
2014 10.0
2013
2.4
7.3
2012
1.1
2011
2.7
Governance
Sector Our Tankships division operates a fleet of product tankers which trade along the UK and North European coastline carrying petrol, diesel, kerosene and biofuels. We perform over 1,000 voyages each year carrying fuel from refinery and terminals to major coastal storage facilities. We also operate a port in Plymouth, UK.
Financial statements
Our principal businesses Operations
End markets
Locations
JF Everard
Delivery of clean petroleum products around the European coastline
Distribution of clean petroleum products
UK
Cattedown Wharves
Port operations
Wet and dry product distribution
UK
Market drivers JF Everard (JFE) distributes clean petroleum products under contracts with oil majors from refineries and terminals to storage facilities around the European coast and to islands. It operates a fleet of double hulled product tankers with capacity ranging from 3,000mt to 13,000mt. The business driver is the level of consumption of clean products (petrol, diesel, kerosene and biofuels) in the UK, Ireland and Northern Europe. JFE has undertaken 35,000 voyages since the year 2000, carrying in excess of 73 million tonnes of petroleum products. This has been achieved whilst maintaining an excellent safety record.
Annual Report and Accounts 2015
Strategic report
Revenue (£m)
Shipping clean petroleum products dramatically reduces our customers’ carbon footprint compared to other modes of transportation. CO2 emissions are halved for shipping compared to road freight and just one full ship keeps more than 150 trucks from the roads. Cattedown Wharves is a port in Plymouth which provides stevedoring services to the oil majors who own tank farms in Plymouth. It also handles dry cargoes such as animal feed which is imported into and clay which is exported from the South West. The primary driver for the business is the level of consumption of clean oil products within the South West of the UK.
19
James Fisher and Sons plc
Corporate responsibility
Corporate responsibility
Introduction The Company is committed to building a sustainable and profitable business while continuing to operate responsibly with honesty, integrity and fairness. Our Board of Directors is ultimately responsible for establishing high ethical standards of behaviour, effective corporate governance and defines our strategic and financial objectives. Corporate responsibility remains central to delivering our strategy and the Chief Executive Officer is the Director with specific responsibility for corporate responsibility matters and oversees the processes and measures used to manage the Group’s social, environmental, ethical, health and safety and associated internal controls. The Group has implemented a number of policies covering anti-bribery and corruption, business ethics, whistleblowing and diversity which support our approach to corporate responsibility. The effectiveness of these policies and procedures are monitored and reviewed on a regular basis to ensure that they align with our Group strategy. We require all our employees to conduct themselves to the highest level of ethical conduct in their business activities and to comply with relevant laws, regulations and standards of market practice in all jurisdictions where the Group operates. We do not permit bribery, illegal or corrupt business practices and we provide a procedure for employees to raise any malpractice concerns in an appropriate forum without fear of recourse.
Our people As a service business the Board recognises that the success of our business is built on the high quality of our talented and diverse workforce and that the long-term success of the Group is dependent on the quality, skill, dedication and motivation of our people. By supporting our people we continue to help them grow and develop to ensure that they have the best skills to perform their job and to develop long-term aspirations and goals with us. Keeping our people inspired remains one of our highest priorities. Accordingly we are focused on creating an environment where performance is rewarded, people are respected for their contribution, diversity and inclusion is encouraged and where integrity is upheld in all aspects of our work. The Group remains committed to recruiting, retaining and developing the highest calibre employees to maximise business growth and performance and is committed to equal opportunity for all employees and job applicants free of discrimination. The Company also recognises the need to provide varying working practices to support both the needs of the Company and that of the employee to maintain a successful work-life
20
balance. In support of this the Company operates a flexible working policy. We support our employees through training and ongoing investment and seek to ensure that employees are informed on matters affecting their employment and business developments in the Group through management briefings and newsletters, the Group’s web site, the Group’s intranet resource and by the distribution of Preliminary and Interim Announcements and press releases. Copies of the Annual Report and Accounts are also made available to the operating business and this communication process enables employees to gain an understanding of the Group’s objectives and their roles in achieving them. To enable personal development, employees are encouraged to participate in training and development programmes and to obtain professional qualifications relevant to their roles through the Group’s training programmes. The Group has broadened its management development and graduate recruitment programme which focuses on recruiting talented graduates, developing skills and experience and producing potential future managers. We operate in a competitive marketplace and the Board recognises the importance of rewarding employees appropriately for the value they bring to the business and aims to offer rewards that attract and retain key talent. In addition, the Company encourages employees to share in its success through share ownership and annually invites employees to participate in its share schemes. At 31 December 2015, 290 employees were participants of the James Fisher Savings Related Share Option Scheme (2014: 287).
Equal opportunities and diversity The Company is committed to equal opportunity and it is our policy to ensure that all employees and potential employees are treated fairly regardless of their race, religious or political beliefs, gender, age, marital status, sexual orientation or disability. We aim to ensure that people from any background or gender have equal access to employment, training and career progression opportunities. We strive to select individuals on merit and do not consider that targets or quotas are appropriate. The Board recognises that by having a diverse workforce the Group is better placed to meet the differing requirements of our global customer base. A strategy is in place to identify current and/or future potential successors to senior management roles throughout the Group and gender diversity is encouraged by the Board. Annual Report and Accounts 2015
Set out below is a breakdown of the average number of persons by gender and category throughout the Group:
Main Board Directors Senior Managers Employees
2014
Male
Female
Male
Female
6
1
6
1
41
9
37
9
2,151
539
2,007
434
The Group is fully committed to delivering the highest standards of safety to its employees and to contractors and visitors to the Group’s premises. We continue to strive towards our ultimate aim of having no accidents or injuries and we promote a proactive safety culture across the Group that ensures continuous improvement. We have a strong focus on employee training, regulatory compliance and accident reduction all of which are monitored and reported on across the Group. The Chief Executive Officer has overall responsibility for health and safety and the review of health and safety performance is high on the agenda at each Board and business board meeting and remains a top priority for our Group. In accordance with our decentralised management approach, accountability is with local management to comply with local laws and regulations and specific needs. Nick Henry chairs the Group Health and Safety Committee (GHSC), which meets on a quarterly basis to discuss all health and safety issues including incidents, mitigating actions and training requirements. The GHSC ensures that recordable safety incidents are reported to the Board and each Group operating company is maintaining high standards of health and safety in its business. Through the GHSC, the Group shares best practice and following any health and safety incidents, including near misses, appropriate corrective action is taken to mitigate the risk of their recurrence. The Group’s principal operating companies maintain internationally recognised Occupational Health and Safety Management Systems accredited to OHSAS 18001 and management systems which are accredited to the international quality standard ISO 19001. The Group has adopted the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013 (RIDDOR) in the reporting of recordable incidents. A reportable incident under RIDDOR is a work-related injury
Annual Report and Accounts 2015
Environmental The Group is committed to operating its businesses in an environmentally responsible manner, recognises that its operations have an impact on the environment and is committed to working within the appropriate regulatory framework to minimise the environmental impacts of its operations, so far as reasonably practicable. The majority of our principal operating companies are ISO 14001 compliant. This internationally recognised environmental management system enables a systematic approach to handling environmental issues within an organisation. Energy consumption was measured across the Group by recording data on the combustion of fuel and the use of electricity at its facilities. The Group’s total greenhouse gas emissions (GHG) are set out below. Emissions from the combustion of bunkers on our Tankships business amounted to 93% of the Group’s total emissions (2014: 94%). However one 4,000 metric ton vessel can carry 150 times the volume of fuel transported by a single road tanker, which significantly reduces congestion and emissions to air.
Emissions total (in thousands of metric tons) 2015
2014
CO2 equivalent from electricity consumption in facilities
2.7
2.8
CO2 from combustion of fuel at facilities and road vehicles
2.6
1.6
CO2 from combustion of fuel in vessels
65.0
73.9
Total emissions (CO2)
70.3
78.4
The Group’s carbon intensity ratio calculated against Group revenue is 0.02% (2014: 0.02%). In 2015 the increase in combustion of fuel was attributable to businesses acquired during this year. The Group’s aim is to reduce our GHG emissions, where possible. To help do so we have identifiable series of actions to help reduce carbon intensive activities, including monitoring and reducing energy consumption, actively improving energy efficiency and avoiding unnecessary travel. Our Tankships division operates a Ship Energy Efficiency Management Plan to regulate shipping energy efficiency and to control our marine GHG emissions.
21
Financial statements
Health and safety
The Group also monitors its overall RIDDOR reportable frequency rate defined as the number of LTA’s per one hundred thousand hours of work. In 2015, the Group’s RIDDOR reportable frequency rate was 0.1 (2014: 0.1). Governance
All of our employees are treated with respect and dignity and harassment of any kind is not tolerated. It is our policy and practice to give full and fair consideration to applications for employment by disabled people. If an employee became disabled during the course of their employment, wherever practicable, the Group would make every effort to ensure that arrangements and adjustments are made to continue their employment and arrange appropriate training for that employee.
Strategic report
2015
which results in a person’s incapacitation for more than seven days. The number of reportable incidents across the Group in 2015 was 5 (2014: 4). The Group also records lost time accidents (LTA’s) to monitor performance and trends. An LTA is where a worker is incapacitated for three or more consecutive days, not including the day of incident. In 2015 the Group incurred 5 LTA’s (2014: 3).
James Fisher and Sons plc
Corporate responsibility continued
Waste management and recycling of materials, where practicable, is encouraged across the Group and in an effort to reduce our carbon emissions from travelling to and from company meetings, the use of video conferencing facilities is actively encouraged throughout the Group.
Human rights James Fisher is committed to supporting and respecting human rights in our workplaces and the communities in which we operate across our international business. We have implemented everyday work practices and policies throughout the Group which are designed to ensure that respect for human rights is integrated into the systems and culture of our business. We do not tolerate the use of child or forced labour within our business and take all steps possible to ensure that our suppliers also uphold all internationally recognised human rights.
Business ethics and anti-bribery and corruption policies As a Group we aim to act responsibly and ethically in all of our business dealings. Through our ethics policy we aim to instil the highest standards of business behaviour across the Group and focuses on embedding a culture of ethical compliance, so that all of our employees understand the standards of ethical business practices that are expected from them. As well as protecting the reputation of the Group and safeguarding the investment of our shareholders, the business ethics policy aims to protect the interests of every employee by ensuring legal and regulatory compliance as well as promoting responsible behaviour across the Group.
and have followed a customer-led strategy to expand into the fast growing international markets. We are proud to be a trusted partner of major corporations, government agencies and customers around the world and understand that continued commitment to our existing and future customers is fundamental to our success. Accordingly, we strive to work hard to understand our customers’ needs, and to continue delivering client satisfaction.
Suppliers The Group requires its businesses to develop their own strong, long-term relationships with suppliers based upon best practice, legal requirements and Group policies and procedures. Group companies promote social responsibility, trade compliance and anti-corruption within their own suppliers base. Key suppliers are vetted to ensure that they adhere to all relevant laws, our polices and our codes of conduct and where appropriate operate recognised international quality, health and safety and management systems.
London Marathon runners raise money for great causes
The Group has an established anti-bribery and corruption policy and has introduced an extensive compliance programme which has full support of the Board and from senior management. The programme includes communication of the statement and policy, training, risk assessment, monitoring and review processes. Employees assessed to be at risk are required to complete the training and to self-certify that they understand and agree to be bound by its provisions. On-going compliance is monitored by local compliance officers who are required to report to their local boards and to the Group Compliance Officer on at least a biannual basis. The compliance officers are responsible for ensuring that risk assessments, training and awareness are up to date and are required to monitor, record and report agency arrangements with third parties.
Customers All of our customers are important to us and the Group aims to provide superior customer service through value added solutions combined with high quality products. High class customer service and product and service innovation are critical elements in helping customers to find solutions and to be successful. We appreciate that every customer has different needs and expectations and we have developed long lasting relationships with customers over many years
22
Two James Fisher employees completed this year’s London Marathon, raising funds for charitable causes. James Martin, business development manager at Fendercare who completed in 4 hours and 36 minutes, raised money for spinal research, and Nicola Morrow, finance manager at JF Testing Services, completed in 5 hours, 26 minutes and raised money for the Children’s Cancer and Leukaemia charity.
Annual Report and Accounts 2015
Communities
Strategic report Governance
The Group continues to encourage its businesses to support local communities within their operational areas and during the year employees throughout the Group have given their time and money undertaking a wide range of charitable giving and fund raising activities. Charitable causes and groups supported by Group companies and employees in 2015 included : Scarborough Engineering Fair; the Children’s Cancer and Leukemia Group; St Thomas Moore School for special needs, Newcastle; Hebburn Juniors football club for partially disabled children; the University of Strathclyde; Cash for Kids; Macmillan Cancer and Run Garioch.
The Sir John Fisher Foundation (SJFF) is a charitable trust established in 1979 by Sir John and Lady Fisher and supports causes throughout the UK, but with special regard to those based in and working for the benefit of people living in and around Barrow-in-Furness and the surrounding area. The Trustees of SJFF retain a significant shareholding in the Company and support charitable causes in relation to maritime, medical and disability, education, music, arts and community projects. In 2015 the Foundation made commitments to charitable causes of £1.7m (2014: £1.5m).
Financial statements
Structural Safety of Small Vessels In 2015 SJFF supported an important maritime training programme being developed at Loughborough University encouraging the more widespread use of techniques to determine the structural safety of smaller vessels put to sea. There are many small vessels at sea whose hull and superstructure are critically compromised and yet the owner or operator is unaware of the potential danger. On 16 May 2014 the UK registered yacht Cheeki-Rafiki on passage from Antigua to the UK was lost approximately 720 miles off the coast of Nova Scotia. The keel of the vessel detached and the yacht capsized so quickly that the crew were immediately ejected and they have not been found. Professor Tyrer of the Department of Mechanical and Manufacturing Engineering, working with the Royal National Lifeboat Institution (RNLI), has developed an optical method for non-destructive testing of all marine composite vessels. The technique uses a laser-based video strain imaging system which can identify the location of any defect within the hull and superstructure construction. This technique has ensured that no composite vessel of the RNLI has been compromised or been unavailable for full-service over the last 20 years. The Foundation donated £73,000 to purchase the necessary equipment to launch a teaching course specifically aimed at UK marine engineers and technicians, to inform them of these methods and techniques which can be used to validate new vessels and audit damaged vessels, such that areas of repair can be identified and validated once suitable repairs have been undertaken. Loughborough’s testing technique, when taught and adopted industry-wide, will implement the key findings from the Marine Accident Investigation Branch’s report into the Cheeki-Rafiki incident and help save lives at sea.
Annual Report and Accounts 2015
23
James Fisher and Sons plc
Board of Directors
Chairman
Executive Directors
Charles Rice
Nick Henry
Stuart Kilpatrick
Chairman of the Board and Nominations Committee +
Chief Executive Officer
Group Finance Director
Appointed: Joined the Board in April 2004 and was appointed as Non-Executive Chairman on 1 August 2012. Skills and experience: Charles has wide experience in commercial shipping having held a number of commercial and operational roles with Overseas Containers Limited. During the 1990s he was responsible for the development of P&O’s Trans European logistics and services division and was appointed as a main board Director of The Peninsular and Oriental Steam Navigation Company (P&O) in 2001. External appointments: Following a number of other directorships, Charles is currently Chairman of the Transport Research Foundation.
Appointed: Joined James Fisher in February 2003 as Managing Director of James Fisher Tankships Limited and was appointed Chief Executive Officer in December 2004. Skills and experience: Nick worked for 20 years for P&O Containers and P&O Ports, of which 10 years were in senior management positions based in Singapore, Hong Kong, Australia, Netherlands and the Indian SubContinent. Nick’s experience encompasses a wide range of commercial and operational roles, including fleet management and information technology. External appointments: Member of the Supervisory Board of the UK Chamber of Shipping.
Appointed: Joined the Group in July 2010 and was appointed to the Board as Group Finance Director in December 2010. Skills and experience: Stuart is a member of the Institute of Chartered Accountants of England and Wales and qualified with BDO Binder Hamlyn. Stuart was formerly Group Finance Director of Empresaria Group plc, and he previously held senior finance roles with Vodafone Group plc, Charles Baynes plc and Elementis Group plc. External appointments: None
Non-Executive Directors
Malcolm Paul
Aedamar Comiskey
Senior Non-Executive Director and Chairman of the Audit and Remuneration Committees *#+
Non-Executive Director *#+
Appointed: Joined the Board in February 2011. Skills and experience: Malcolm is a fellow of the Institute of Chartered Accountants in England and Wales and was a founder and former Finance Director of WSP Group plc between 1987 and 2009. Prior to that Malcolm was a principal at the corporate finance boutique Financial Decisions and an equity partner at Longcrofts, Chartered Accountants. External appointments: Chairman of Anthesis Consulting Group, a private equity backed international company.
Appointed: Joined the Board in November 2014. Skills and experience: Aedamar has been a partner at Linklaters LLP since 2001 and is a member of the firm’s International Board. Aedamar specialises in international and domestic mergers and acquisitions, joint ventures and fundraisings and is very involved in expanding Linklaters’ business in Latin America. Before joining Linklaters, Aedamar worked for two years as a consultant with Accenture in Dublin, Chicago and Belfast. External appointments: None
David Moorhouse CBE
Michael Salter Non-Executive Director *#+
Non-Executive Director *#+ Appointed: Joined the Board in August 2013. Skills and experience: David was formerly Executive Chairman of Lloyds Register and earlier in his career, CEO of John Brown plc, a director of Trafalgar House plc and Executive Vice President of Kvaerner where he had particular responsibility for their engineering and process businesses. External appointments: Chairman of Braemer Shipping plc; Non-Executive Director of OAO Sovcomflot; Life member of the UK’s Foundation for Science and Technology.
Appointed: Joined the Board in August 2013. Skills and experience: Michael was formerly Chief Operating Officer at Abbot Group plc and earlier in his career, CEO of Smedvig Limited and General Manager of Bawden Drilling UK Ltd. External appointments: Non-Executive Director of SAR Gruppen AS; Director of ASV Pioneer Limited.
* Audit Committee # Remuneration Committee + Nominations Committee
24
Annual Report and Accounts 2015
James Fisher and Sons plc
Corporate governance report
Introduction from the Chairman
Our statement of compliance with the main principles of the Code is set out below. The Board is committed to good corporate governance and considers it essential in assisting the business to deliver its strategy and overall objectives including safeguarding shareholders’ long-term interests.
Strategic report
I am pleased to present the Corporate Governance report on behalf of the Board. This report together with the Audit Committee and Directors’ remuneration reports are intended to give shareholders a clear and meaningful explanation of how the Board and its Committees discharge their corporate governance duties and how the principles of good governance as set out in the UK Corporate Governance Code 2014 (Code1) have been applied throughout the Group.
I would encourage all shareholders to attend our Annual General Meeting (AGM) on 28 April 2016 as it provides an excellent opportunity to meet the Executive and Non-Executive Directors. Governance
Charles Rice Chairman 1 March 2016
Statement of compliance
Leadership Role of the Board The Board is the principal decision making forum for the Company. The Board is responsible for the long-term success of the Company and for its leadership, strategic direction, control and management.
Chairman and Chief Executive Officer The roles of the Chairman and Chief Executive Officer are separate, clearly distinct and the division of their responsibilities is set out in writing and approved by the Board. The Chairman’s role is to lead the Board and ensure the Board operates effectively in all aspects. The Board considers that Charles Rice, up to the date of his appointment as Chairman, was independent for the purposes of the Code. The Chief Executive Officer’s role is to have the day to day responsibility of running the Group including leadership of senior management in executing the Company’s strategy and managing the operational requirements of the Group’s businesses. The Board has considered and is satisfied that the roles of Chairman and Chief Executive Officer operate effectively.
Non-Executive Directors The Board considers the Non-Executive Directors combine broad business and commercial experience to bring independent and objective judgement to bear and to challenge constructively the Executive Directors on issues of strategy, performance, resource and standards of conduct. The balance between Non-Executive and Executive Directors enables the Board to provide clear and effective leadership and maintain the highest standards of integrity across the Group’s business activities. Each Non-Executive Director is expected to commit sufficient time to allow for attendance at Board and Committee meetings and for keeping in touch with the senior management team, shareholders and other stakeholders. Malcolm Paul, the Senior Independent Director, also acts as a sounding board for the Chairman and an intermediary for Non-Executive Directors where necessary. The Company Secretary is responsible for advising the Board, through the Chairman, on all governance matters and to ensure that Board procedures are followed and applicable rules and regulations are complied with. The Company Secretary also advises the Directors on any important changes in legislation, regulation and best practice. In addition, all Directors have access to independent professional advice as necessary.
1
A copy of the Code can be found at the Financial Reporting Council’s (FRC) web site frc.org.uk
Annual Report and Accounts 2015
25
Financial statements
The Board is accountable to shareholders for maintaining high standards of corporate governance and for ensuring that values and behaviours are consistent across the Group. The Board confirms that, without exception, the Company complied with all relevant provisions of the Code throughout the year ended 31 December 2015 and from that date up to the date of this report.
James Fisher and Sons plc
Corporate governance report continued
Board Committees The Board has delegated certain responsibilities to the following committees: •
Remuneration Committee;
•
Nomination Committee; and
•
Audit Committee.
Each Committee has formal written terms of reference which are reviewed annually. Further detail on each of these Committees is provided on pages 28 and 29. The terms of reference are renewed annually and available on the Company’s website. In addition to the formal Committees, the Board has appointed an Executive Committee consisting of the Chairman and the Executive Directors, which has written terms of reference and reports to the Board. The Board also appoints from time to time sub-committees consisting of at least two Directors in order to finalise and approve those matters that have been approved in principle by the Board.
Operation of the Board Subject to the Company’s Articles, the Executive Committee is empowered to take such actions as considered necessary relating to the affairs of the Company in the normal course of business and of a routine nature, subject to such limits as the Board in its discretion determines. The Executive Committee reports into the Board via the Chairman. The Executive Directors meet with the Chairman at least monthly. The Executive Directors also meet at least monthly with the Group’s central senior executive team and also meet with the managing directors of the principal businesses on at least a quarterly basis to deal with operational issues, review risks and to develop and implement strategy. The Board has adopted a formal schedule of matters detailing key aspects of the Company’s affairs which are deemed significant enough to be reserved for only the Board to approve, including: •
strategy and management;
•
corporate governance;
•
oversight of the Group’s operations to ensure competent management, sound planning, adequate accounting and records and compliance with statutory and regulatory obligations;
•
annual operating plan and capital expenditure;
•
review of financial performance in light of the Group’s strategy, short-term and medium-term objectives, business budgets;
•
major corporate transactions;
•
material contracts;
•
assessment of the principal risks facing the Group and how they are being managed;
•
the Group’s systems of internal control and risk management;
•
approval of the Viability Statement;
•
all new bank facilities or significant changes to existing facilities;
•
key policies; and
•
approval of the Group and Company financial statements.
The schedule is reviewed annually and approved by the Board. All Directors participate in discussing strategy, performance and financial and risk management of the Company. Strategy, acquisition and disposal of businesses and major capital investments are agreed between the Chairman, the Chief Executive Officer and Group Finance Director prior to review and approval by the Board. Meetings of the Board are structured to allow open discussion and as scheduled, the Board met six times in 2015. Directors’ attendance at the Board and Committee meetings convened in the year is shown in the table on page 29. To enable the Board to discharge its duties, the Chairman ensures that all Directors receive accurate, timely and clear information on all relevant matters in advance of the Board meetings, including comprehensive financial and business reports covering the Group’s principal activities. The Non-Executive Directors regularly visit major business centres of the Group in order to enhance their knowledge including in relation to the services and products offered, which in turn acts to strengthen their contribution to Board debate.
26
Annual Report and Accounts 2015
Board Effectiveness Size, composition and independence of the Board There are currently seven Directors on the Board comprising the Non-Executive Chairman, the Chief Executive Officer, the Group Finance Director and four other Non-Executive Directors. The names and biographical details of the members of the Board are set out on page 24. More than half the Board, excluding the Chairman, are Non-Executive Directors, and the Board is satisfied that all of these were independent throughout the year.
The Board functions effectively and efficiently and is considered to be of an appropriate size in view of the scale of the Company and the diversity of its businesses. The Board considers that each Director demonstrates the knowledge, ability and experience required to perform the functions of a director of the listed company and is of the calibre necessary to support and develop the Company’s long-term strategy and success. The Board further considers that each Director is able to devote sufficient time to the Company’s business and that no individual or small group of individuals dominates the Board’s decision making.
Financial statements
Training and induction On appointment, new Directors are given a detailed induction to the Group’s business, together with an on-going programme of visits to the Group’s major sites and meetings with senior management. On-going training and development for Directors is available as appropriate and is reviewed annually.
Board evaluation At the end of each year, the Board undertakes an annual evaluation of its own performance and that of the Remuneration, Nominations and Audit Committees and of each individual Director. The performance evaluations are designed to assist the Board in identifying strengths and weaknesses and areas for further improving performance. The Board engaged Advanced Boardroom Excellence Limited (ABEL), an independent entity with no connection to the Company, to facilitate the 2015 annual review of performance of the Board and its Committees against the framework of Board effectiveness produced by the FRC. ABEL interviewed all of the Directors and the Company Secretary and reviewed Board papers, including documents from the Board’s Committees. The anonymity of all respondents was ensured throughout the process in order to encourage an open and frank exchange of views. The results were analysed by ABEL and discussed with the Chairman, finalised and presented to the Board. The review concluded that the Board works well as a unit and has a good mix of business experience to ensure that issues are examined from a broad range of perspectives. The documentation reviewed by the Board reflects a good level of governance and process relative to the size of the James Fisher Group. The annual review of individual Directors performance was conducted internally. The Chairman’s performance was reviewed by the other Non-Executive Directors led by the Senior Independent Non-Executive Director and taking into account the views of the Executive Directors. The performance of the Executive Directors was reviewed by the Non-Executive Directors with the Chairman in attendance. The Chairman and the Executive Directors reviewed the performance of each of the other Non-Executive Directors. The Board considers that each Director continues to contribute and demonstrate commitment to the role.
Accountability Financial and business reporting The Board considers that the Annual Report and Accounts taken as a whole, present a fair, balanced and understandable assessment of the Group and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. In making this assessment, the Board took into account its own knowledge of the Group, the markets in which the Group operates, its strategy and performance in the year, a detailed review of the content of the Annual Report and Accounts and other periodic financial statements and announcements, together with the recommendation of the Audit Committee.
Annual Report and Accounts 2015
Governance
During the year, Charles Rice met with the Non-Executive Directors without the Executive Directors present on more than one occasion and Malcolm Paul, the Senior Independent Director, met with the other Non-Executive Directors without the Chairman present on more than one occasion.
Strategic report
During the year, the Board has considered a wide range of matters including corporate governance, Group strategy, forecasts and long-term objectives, acquisitions, financing, taxation, risk management, internal controls, the Group’s principal risks, management and succession planning and Board composition.
27
James Fisher and Sons plc
Corporate governance report continued
The going concern assessment and the viability statement are set out on pages 49 and 50.
Risk management and internal controls The Board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives and for ensuring that the Company maintains sound risk management and internal control procedures. On behalf of the Board, the Audit Committee monitors the Group’s risk management and internal control process and reviews its effectiveness on an on-going basis. This is part of an established process, in accordance with the FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting published in September 2014, for the identification, evaluation and management of the significant risks facing the Group, which operates and is reviewed continually throughout the year. The Group’s internal control systems are designed to provide the Board with reasonable assurance as to the effective and efficient operation of the Group and to ensure the quality of internal and external reporting and compliance with all applicable laws and regulations. However, there are inherent limitations in any system of internal control and accordingly even the most effective system can provide only reasonable and not absolute assurance. The Board has taken appropriate action to remedy any significant control failings as referred to in the Audit Committee report on page 32. The Board has carried out a robust assessment of the principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity. Details of those principal risks and the Group’s approach to mitigating them are set out on pages 10 and 11 in the Strategic report.
Whistleblowing policy As part of its internal control procedures, the Group has a whistleblowing policy which encourages employees to report in good faith any genuine suspicions of fraud, bribery or malpractice in order to identify any problems within the Group at an early stage. The policy is designed to ensure that any employee who raises a genuine concern is protected. Any concerns can be raised in the first instance with the Company Secretary in confidence.
Anti-bribery and corruption The Board is committed to ensuring the highest standards in all of the Group’s business dealings and condemns corruption in all its forms. The Group has a formal anti-bribery and corruption statement and policy and does not tolerate or condone corruption or bribery in any of the Group’s business dealings. This policy has been implemented throughout the Group and is supported by a group-wide training and awareness programme and regular compliance reviews. This policy is reviewed annually by the Board and is available on the Group’s website.
Relations with shareholders The Company communicates with shareholders through the Annual Report and Accounts, Half Yearly Report, preliminary announcements, interim management statements, investor days and the Company web site. The Board takes the opportunity at the AGM to meet and communicate with private and institutional shareholders and welcomes their involvement. In addition, the Company invites regular direct communication with its shareholders as part of the Company’s investor relations programme. Non-attributable feedback on the investor presentations given by the Company to shareholders is circulated to the Board. The Chairman periodically consults with major shareholders in order to develop a balanced understanding of any issues and concerns and the Senior Independent Director is available to attend meetings with major shareholders if requested. In addition if at any meetings of the Executive Directors with investors a governance or strategy matter is raised, it is relayed back to the Board. The Board is therefore of the view that appropriate steps have been taken to ensure all Board members, in particular the Non-Executive Directors, develop an understanding of the views of the major shareholders.
Remuneration Committee The Remuneration Committee reports to the Board and its members are appointed by the Board. The Committee members are Malcolm Paul, Aedamar Comiskey, David Moorhouse and Michael Salter. The Committee is chaired by Malcolm Paul. The Committee is formally constituted with written terms of reference. In summary, the Committee’s terms of reference include: •
To determine and agree with the Board the remuneration policy for Executive Directors and other senior executives;
•
To review the appropriateness and relevance of the Group’s remuneration policy; and
•
To ensure that the provisions of the Code are fulfilled.
28
Annual Report and Accounts 2015
Strategic report
The Chairman attends the Committee’s meetings by invitation and is not present when his own terms and conditions are discussed. During the year the Committee had three scheduled meetings. The work of the Committee including the chairman’s overview is described in the Directors’ remuneration report on pages 33 to 45.
Nominations Committee The Nominations Committee reports to the Board and its members are appointed by the Board. The Committee members are Charles Rice, Malcolm Paul, Aedamar Comiskey, David Moorhouse and Michael Salter. The Committee is chaired by Charles Rice. Aedamar Comiskey joined the Committee on 1 November 2015. The Committee is formally constituted with written terms of reference which include: To regularly review the structure, size and composition of the Board (including skills, knowledge, diversity and experience) and recommend changes;
•
Succession planning for Directors and senior executives; and
•
Identifying and nominating for approval to the Board, candidates to fill vacancies when they arise.
The Committee adopts a formal, rigorous and transparent procedure for the appointment of new Directors to the Board. The Board recognises the importance of diversity and in light of the Davies’ Review Steering Group’s recommendation in October 2015, the Committee recommended and the Board agreed that a target be adopted that by 31 December 2018, at least two of seven Board members be female. The Committee had one scheduled meeting in 2015 and its work included reviewing the composition of the Board, succession planning and recommending to the Board the appointment of Aedamar Comiskey to the Nominations Committee.
Financial statements
Audit Committee The Audit Committee assists the Board in its oversight and monitoring of financial reporting, risk management and internal controls. The Committee members are Malcolm Paul, Aedamar Comiskey, David Moorhouse and Michael Salter. The Committee is chaired by Malcolm Paul. The Audit Committee report on pages 30 to 32 describes in detail the Committee’s role and activities.
Attendance at Board and Committee meetings Directors’ attendance at the Board and Committee meetings convened in the year was as follows: Board
Number of Meetings
Audit Committee
Remuneration Committee
Nominations Committee
6
4
3
1
Charles Rice
6/6
–
–
1/1
Nick Henry
6/6
–
–
–
Stuart Kilpatrick
6/6
–
–
–
Malcolm Paul
6/6
4/4
3/3
1/1
Aedamar Comiskey
5/6
4/4
3/3
1/1
David Moorhouse
5/6
3/4
3/3
1/1
Michael Salter
6/6
4/4
3/3
1/1
Annual Report and Accounts 2015
Governance
•
29
James Fisher and Sons plc
Audit Committee report
I am pleased to introduce the report of the Audit Committee for the year ended 31 December 2015. The Audit Committee assists the Board in discharging its responsibility for oversight and monitoring of financial reporting, risk management and internal control. As chairman of the Committee, it is my responsibility to ensure that the Committee fulfils its responsibilities in a rigorous and effective manner. The Committee’s agenda is designed, in conjunction with the Board’s, to ensure that all significant areas of risk are covered and to enable it to provide timely input to Board deliberations. In line with the Code this report seeks to provide an insight into the matters considered by the Committee during the year and therefore to provide assurance to shareholders that the control environment of the Group is being properly supervised and monitored. I am satisfied that the Committee is properly constituted with written terms of reference, which include all matters referred to in the Code and is provided with appropriate information to allow sufficient time for discussion and to ensure that all matters are considered fully. The Committee’s terms of reference are available on our website. Of particular importance is the requirement to ensure that the Group’s financial reporting is fair, balanced and understandable. We therefore review all of the Group’s financial reports before publication with this responsibility in mind and we are satisfied that they provide a fair, balanced and understandable assessment of the Group’s position and performance. Malcolm Paul Chairman of the Audit Committee
Membership of the Committee The Audit Committee is chaired by Malcolm Paul and consists exclusively of independent Non-Executive Directors. The Board is satisfied that Malcolm Paul, a Chartered Accountant, who was formerly Finance Director of a FTSE 250 company, has significant recent and relevant financial experience. The other members are David Moorhouse, Michael Salter and Aedamar Comiskey. Committee attendance is shown on page 29. The Committee had three meetings during the year in February, August and November on dates scheduled to coincide with the financial reporting cycle and also met on one other occasion. The Group Chairman, Chief Executive Officer, Group Finance Director, the Company Secretary and senior members of the finance function attend by invitation together with representatives of the external auditor, including the reporting partner, and internal auditor. At each scheduled meeting the Committee members have the opportunity to discuss matters privately with the external auditor and the internal auditor. In addition, the chairman of the Committee maintains regular contact with the external audit reporting partner to discuss matters related to the Group. Details of the Committee’s specific responsibilities and how it exercises those responsibilities is set out in the remainder of this report. The Committee also formally reviews its own performance each year.
Main responsibilities The Audit Committee’s main duties and responsibilities include: monitor the integrity of the Group’s financial statements and review and challenge to significant financial reporting judgements therein; review the Group’s internal financial controls and the systems for risk management and internal control; monitor and review the effectiveness of the internal audit function; monitor the Company’s policies for handling allegations from whistleblowers; assess the independence and objectivity of the external auditor, make recommendations to the Board for the external auditor’s appointment, re-appointment and removal together and approve their remuneration, terms of engagement and provision of non-audit services.
Financial reporting The Committee’s primary responsibility in relation to the Group’s financial reporting is to review and challenge where necessary, with both management and the external auditor, the appropriateness of the Group’s half yearly and annual financial statements with particular focus on: •
whether suitable accounting policies have been adopted and properly applied;
•
the clarity of disclosures, compliance with financial reporting standards and relevant financial and governance reporting requirements;
•
whether management has made appropriate estimates and judgements in material areas or where there has been discussion with or issues raised by the external auditor;
•
whether the Annual Report and Accounts taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
30
Annual Report and Accounts 2015
Integrity of financial reporting
Strategic report
To facilitate our financial reporting responsibility we receive reports from KPMG at three of the meetings. The first, in February, which contains the findings of KPMG’s audit work, including comments on the draft Annual Report and Accounts. The August meeting considers a review by KPMG of the half year results and the November meeting receives the planning memorandum for the annual audit together with an indication of the proposed audit fee which is subject to subsequent agreement.
We reviewed the integrity of the annual and half yearly financial statements of the Company. This included the review and discussion of papers prepared by management and took account of the views of the external auditor. The key areas reviewed in the current year are set out below.
Revenue recognition and construction contracts Governance
Long-term (construction) contracts often span a period end and as a result judgements are made on the stage of completion of these contracts to fairly present revenue and profit recognition. The Group uses established and consistent accounting policies to account for construction contracts. The Committee received reports on a number of contracts and challenged the methodology by which revenue and profits had been recognised. Where appropriate, matters arising were discussed with the Group Finance Director and the Committee concluded that the financial statements recognised revenue in accordance with the Group’s accounting policies.
Goodwill valuation
Operations in overseas jurisdictions The Group has operations in overseas jurisdictions particularly in emerging markets, sometimes in association with local shareholders. This potentially increases the level of financial and governance risk in the Group. The Committee receives regular updates on the operational and financial performance of these businesses together with the assessment of areas where specific judgements have been necessary. Where appropriate the Group seeks local professional advice on matters of legislation and tax and responds accordingly. During the year, the principal customer of one of the Group’s overseas subsidiaries terminated its contract creating uncertainty around the timing and value of final settlement. The Committee reviewed management’s estimate of the financial outcome in detail.
Acquisition accounting The level of judgement involved in determining acquisition fair values and the valuation of acquired intangible assets is a potential risk to the Group. The Committee considered the fair value and accounting policy adjustments made to each acquisition and assessments in respect of contingent consideration provisions. These were discussed with the Group Finance Director and the external auditor separately and the Committee concluded that acquisitions had been accounted for in accordance with the Group’s accounting policies. The Committee was satisfied that each of the matters set out above was adequately addressed by the Executive Directors, appropriately tested and reviewed by the external auditor and that disclosures made in the half yearly and Annual Report and Accounts were appropriate.
Going concern We reviewed the appropriateness of the going concern assumption in preparing the financial statements. We reviewed a paper prepared by management which considered the Group’s internal budgets and forecasts of future performance, available financing facilities and facility headroom. Taking account of possible changes that may impact trading performance and other factors that might affect availability, the Group expects to maintain significant headroom under its borrowing facilities for the forthcoming year.
External audit Performance The Committee continually assesses the performance of the external auditor from the initial planning stage when they receive and discuss the audit plan and proposed strategy, approach, objectives, significant risk areas and other areas of focus, drawing on input from the Group’s senior management, until conclusion of the audit. The Committee conducts annually a
Annual Report and Accounts 2015
31
Financial statements
We considered the carrying value of goodwill and the impairment review which was based on the underlying assumptions in calculating the value of a cash generating unit. The key assumptions are the achievability of long-term forecasts and the discount rates applied to the forecast cash flows. As an area of audit focus, the Group Finance Director provided detailed reporting to the Committee including an assessment of the sensitivity analysis carried out.
James Fisher and Sons plc
Audit Committee report continued
formal assessment of the external auditor’s performance based on its own review and that of the Group’s senior management. This process includes the use of questionnaires which focus on the quality and experience of the audit teams, the robustness of the audit process and the quality of communication and governance, including the independence of the audit firm. The results of the review are considered by the Committee and discussed with the auditor and senior management and reported to the Board. For the 2015 audit, the Committee considered that the performance of the external auditor including their interaction with the Company, senior management and the Committee was good. The Committee also continues to consider KPMG to be independent and effective in their role as auditor. Accordingly, the Committee recommended to the Board that KPMG LLP should be re-appointed as auditor and a resolution to this effect will be put forward at the forthcoming AGM.
Audit appointment KPMG has been the Company’s auditor since 2008 during which time the audit has not been put out to tender. The Committee has considered the requirement of the Code to put the external audit to tender at least every ten years and the requirements of the Competition and Markets Commission and the potential implementation of the EU Audit Reform Regulation. As a result, it plans to complete a competitive tender for the audit services contract by 2017 at the latest. There are no contractual obligations that restrict the Committee’s choice of external auditor.
Non-audit services To safeguard the objectivity and independence of the external auditor, the Company has an established policy in respect of non-audit fee work that may be undertaken by the auditor. Whilst the Committee accepts that certain work of a non-audit nature is best undertaken by the auditor, it is a requirement that where fees exceed an agreed threshold, approval to use the auditor for such work must be given in advance by the Committee. In 2015, KPMG carried out corporate advisory work including due diligence reports on acquisitions and tax advisory work including tax advice on acquisitions, transfer pricing and research and development. Non-audit fees paid to KPMG represented 39% of the audit fee in 2015 and 28% of total fees paid.
Risk management and internal controls The Board has overall responsibility for the Group’s risk management and internal control systems. The Audit Committee is responsible for monitoring and reviewing the effectiveness of these systems and the Group’s internal audit function. The Committee received reports throughout the year including from the Risk Committee and has reviewed the Group’s systems of risk management and internal controls, including financial, operational and compliance controls, and is satisfied that the systems are sound and effective. Reports on internal control failings or whistleblowing complaints are referred to the Audit Committee for review. Two instances of internal control failure related to cyber security were reported in 2015 as a result of which controls were tightened and new procedures implemented. No material financial losses were incurred. There was one whistleblowing report in 2015 which was investigated, but no evidence to substantiate the allegation was found.
Internal audit The Committee is responsible for reviewing the work of the internal audit function. Internal audit identify, report on and address key commercial and financial risk and control issues. The internal audit function is managed by an experienced professional and consists of peer group reviews, whereby a senior manager from the Group conducts an audit of a nonrelated area of the Group, and reviews by the internal audit function. These are in accordance with an annual programme approved by the Committee. The scope of each internal audit review is agreed by the Committee in consultation with the Executive Directors and the internal auditor in advance to try to ensure that key areas for each business are addressed. In 2015 thirteen internal audits were undertaken, twelve in the UK and one overseas. The internal audit reports are presented to the Committee for review and shared with local and Group managers for review and action as appropriate, and also provided to the external auditor for information. The internal auditor is responsible to the Committee for ensuring that all required actions are completed in a timely manner. The effectiveness of the Group’s internal audit function is continually reviewed and a formal review is undertaken annually by the Board and the Committee. Following the final 2015 review, the Committee recommended and the Board concluded that the Group’s internal audit process was appropriate and effective. The responsibilities and processes for risk management are described in more detail on page 10. Malcolm Paul Chairman of the Audit Committee 1 March 2016
32
Annual Report and Accounts 2015
James Fisher and Sons plc
Directors’ remuneration report
Annual statement On behalf of the Board, and the Remuneration Committee, which I chair, I am pleased to present the Directors’ remuneration report for the year ended 31 December 2015.
Pay and performance in 2015
Strategic report
Introduction by Malcolm Paul, Chairman of the Remuneration Committee
James Fisher continued to deliver sustainable returns in a challenging market in 2015 but had to report the first decline in profits for some years. The key performance measures for the 2015 financial year were as follows: •
Underlying profit before tax £41.2m (2014: £46.9m)
•
Underlying diluted earnings per share 68.5p (2014: 74.0p)
2016 remuneration Annual pay awards are determined on a country and sectoral basis, to ensure that pay levels in each subsidiary company are fair and appropriate to local market and industry conditions. In the UK, against a back-drop of near zero inflation levels, any pay increases made for 2016 have reflected conditions in each business sector as well as individual merit awards. Overall, UK salary increases are around 1% at an aggregate level. Against this background and reflecting the reduced profitability achieved in 2015, the Board has agreed that there will be no increase in the salaries and benefits of the Executive Directors in 2016 and no increase in the fees paid to the Chairman and other Non-Executive Directors.
Remuneration policy for 2016 The Company’s remuneration policy was approved by shareholders at the AGM in April 2015 and the current intention is that it will apply until the 2018 AGM. Therefore, we will not be asking shareholders to vote on the policy at the 2016 AGM. In summary, executive remuneration consists of a base salary, pension contribution, benefit provision and, subject to performance conditions, an annual bonus plan, part paid in cash and part deferred into shares, and shares awarded under an LTIP. Incentive pay is subject to clawback and malus provisions and, post-vesting, Executive Directors are required to retain the net of tax shares awarded until they have satisfied the Company’s share ownership guidelines. The Committee considers that the remuneration policy is appropriate and that it satisfies the Committee’s objective to operate a remuneration structure which successfully promotes the long-term success of the Group and fully aligns the interests of the Executive Directors with those of our shareholders.
Shareholder feedback The Company will continue to engage and communicate with shareholders regarding the Company’s remuneration policy and to take suitable action when required. I hope you will join me in supporting the resolutions in respect of this year’s Directors’ remuneration report at the AGM on 28 April 2016. Malcolm Paul Chairman of the Remuneration Committee 1 March 2016
Annual Report and Accounts 2015
33
Financial statements
The Executive Directors’ potential maximum level of bonus in 2015 was 100% of base salary, with 70% based on meeting the Group’s financial objectives and 30% based on individual achievement and personal objectives. The Group’s financial targets for the year ended 31 December 2015 were not achieved and this element of bonus was not awarded. Personal objectives were partly met and a cash bonus award of 22.5% of base salary was approved for Nick Henry and for Stuart Kilpatrick. Awards under the LTIP granted in 2013 will vest in full on 6 April 2016, having achieved the maximum earnings per share performance target over the three year performance period ended 31 December 2015. Awards under the ESOS granted in April 2013, which are subject to relative total shareholder return (TSR) targets, are not expected to vest based on the calculations as at 31 December 2015.
Governance
Each year the performance of the Executive Directors is assessed against a range of financial and personal objectives which are aligned with the delivery of the Group’s strategy and objectives. By incentivising and rewarding performance that delivers our objectives we ensure that pay is tied to performance and value delivered to shareholders.
James Fisher and Sons plc
Directors’ remuneration report continued
Remuneration policy report Overview of Directors’ remuneration policy James Fisher and Sons plc operates in a competitive international environment. To continue to compete successfully, the Committee considers that it is essential that the level of remuneration and benefits achieves the objective of attracting, retaining, motivating and rewarding the necessary high calibre of individuals at all levels of the business. The Company therefore sets out to provide competitive remuneration to all of its employees, appropriate to the business environment in those countries in which it operates. The remuneration strategy is designed not only to align with the Company’s fundamental values of fairness, competitiveness and equity, but also to support the Company’s corporate strategy, as a significant contributor to competitive advantage. A cohesive reward structure with a timely pay review process, consistently applied to all employees, with links to corporate performance is seen as critical in ensuring all employees can associate with, and are focused on, the attainment of the Company’s strategic goals. Accordingly the remuneration package for the Executive Directors is normally reviewed annually. Where an Executive Director’s responsibilities change during the course of a year, the Committee will consider whether a review is appropriate outside of the annual process. Executive remuneration reviews are based upon the following principles: •
Total rewards should be set at appropriate levels to reflect the competitive market in which the Company operates, and to provide a fair and attractive remuneration package.
•
Reward elements should be designed to reinforce the link between performance and reward. The majority of the total remuneration package should be linked to the achievement of appropriate performance targets.
•
Executive Directors’ incentives should be aligned with the interests of shareholders. This is achieved through setting performance targets to reward increase in shareholder value and through the Committee’s policy to encourage shareholding by Executive Directors.
How the Executive Directors’ remuneration policy relates to the wider Group The remuneration policy set out within this report provides an overview of the structure that operates for the senior executives in the Group. Employees below executive level have a lower proportion of their total remuneration made up of incentive-based remuneration, with remuneration driven by market comparators and the impact of the role of the employee in question. Long-term incentives are reserved for those judged as having the greatest potential to influence the Group’s earnings growth and share price performance. While the Remuneration Committee considers pay and conditions across the workforce when reviewing and setting the Executive Director remuneration policy, the Committee does not consult with employees on this matter at the current time.
How shareholders’ views are taken into account The Committee takes an active interest in shareholder views on our remuneration policy and is mindful of the views of shareholders and other stakeholders.
Directors’ remuneration policy The table below summarises the components of reward for Executive Directors of James Fisher and Sons plc that will govern the Company’s intentions as regards future payments. The remuneration policy (Policy) set out in this report was approved by shareholders at the AGM held on 30 April 2015 and, it is intended that it will continue to apply until the 2018 AGM. Any commitments made by the Company prior to the approval and implementation of the Policy which were consistent with the policy in force at the time, can be honoured, even if they would not be consistent with the Policy prevailing when the commitment is fulfilled.
34
Annual Report and Accounts 2015
Purpose and link to strategy Operation
Maximum
Performance targets
Base Salary
Designed to attract retain, motivate and reward the necessary high calibre of individuals to the Board.
No prescribed maximum salary or salary increase.
Not applicable.
Base salaries are a fixed annual sum normally effective 1 January and payable monthly in cash.
Salaries are set for each Executive Director within a range around the market median for similar positions in appropriate comparator companies. The Committee is also guided by the general increase for the employee population although increases may be higher or lower than this to recognise, for example, an increase in the scale, scope or responsibility of an individual.
Governance
Salaries are reviewed each year normally effective 1 January and recognising the individual’s performance and experience, developments in the relevant employment market and having regard to the Group’s performance as well as comparing each Executive Director’s base salary to market data.
Strategic report
Element
To offer competitive retirement benefits.
Executive Directors are eligible to join the Group’s defined contribution scheme, receive a company contribution into a personal pension scheme or be paid a cash supplement in lieu of pension.
Up to a maximum of 15% of base salary.
Not applicable.
Benefits
To offer competitive benefits.
Provision of a company car or cash alternative, life assurance and healthcare insurance. Other benefits may be provided where appropriate.
No prescribed maximum.
Not applicable.
Financial statements
Pensions
These benefits do not form part of pensionable earnings.
Annual bonus
To incentivise and reward the Executive Directors to deliver annual financial and operational targets.
Payable on the achievement of Up to 100% of base salary. financial and personal objectives and non-pensionable. The first 70% of salary payable in cash. Bonus in excess of 70% of salary is subject to deferral into shares, normally for a period of 3 years. Dividend equivalent payments may be awarded (in cash or shares).
Majority of the bonus potential is based on a financial target derived from the annual plan; Minority of the bonus potential is based on individual achievement and personal objectives.
The cash and deferred elements of bonuses are subject to provisions which enable the Committee to recover the cash paid (clawback) or to lapse the associated deferred shares (malus) in the event of: (i) misstatement of results for the financial year to which the bonus relates, or (ii) an error in determining the cash bonus or the number of shares comprising a deferred share award, within 3 years of the payment of the cash bonus, or (iii) gross misconduct.
Annual Report and Accounts 2015
35
James Fisher and Sons plc
Directors’ remuneration report continued
Element
Purpose and link to strategy Operation
Maximum
Performance targets
LTIP
To align the interests of the Executive Directors with the Group’s long-term performance, strategy and the interests of shareholders.
Annual grant of share awards.
Up to 200% of base salary.
Non-pensionable.
Awards above 125% will be subject to stretch targets.
Sliding scale relative to EPS and/or TSR growth targets.
Dividend equivalent payments may be awarded (in cash or shares).
25% of an award vests at threshold increasing to 100% vesting at maximum.
LTIP awards are subject to clawback or malus in the event of: (i) misstatement of results; or (ii) an error in determining the share award, or (iii) gross misconduct. Share ownership
To ensure alignment between the interests of Executive Directors and shareholders.
Executive Directors are required to retain half of the post-tax shares vesting under the LTIP until the guidelines are met.
200% of base salary for the Chief Executive Officer.
Not applicable.
100% of base salary for other Executive Directors.
Sharesave (previously SRSOS)
To encourage share An all-employee share plan. ownership and align the interests of all-employees and shareholders.
As per prevailing HMRC limits.
Not applicable.
Non-Executive Directors
To provide fees to reflect the time commitment and responsibilities of each role in line with those provided by similarly sized companies.
No prescribed maximum fee or fee increase although aggregate fees are limited by the Company’s Articles of Association.
Not applicable.
Fixed annual fee, paid quarterly in cash reviewed annually; Committee determines the Chairman’s fees. The Chairman and Executive Directors determine fees for the other Non-Executive Directors.
The Board/Committee is guided by market rates, time commitments and responsibility levels.
Notes: (1) The choice of the performance metrics applicable to the annual bonus reflect the Committee’s belief that any incentive compensation should be appropriately challenging and tied to both the delivery of financial and personal objectives. (2) TSR and EPS performance conditions are selected by the Remuneration Committee on the basis that they reward the delivery of long-term returns to shareholders and the Group’s financial growth and are consistent with the Company’s objective of delivering superior levels of longterm value to shareholders. The TSR performance condition is monitored by an independent advisor whilst EPS growth is derived from the audited financial statements. (3) The Committee operates its share plans in accordance with the plan rules and the Listing Rules and the Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration of the plans (e.g. treatment of awards for leavers, change of control, adjustments to performance targets). (4) Consistent with HMRC legislation, the all-employee arrangement does not have performance conditions. (5) In approving the Directors’ remuneration policy, authority was given to the Company to honour any past commitments entered into with current or former Directors including the vesting of share awards granted in the past.
Potential value of 2016 remuneration package for Executive Directors Maximum Target
32% 48%
Minimum £0 Fixed Element
Chief Execuve Officer 27% 21%
31%
41% £973,507
£1,455,569
£491,444
£500,000
£1,000,000
Short-Term Variable : Cash Bonus
£1,500,000 Long-Term Variable : LTIP
Maximum
32%
Target Minimum
48%
£0
Fixed Element
£200,000
Group Finance Director 27% 21% 31% £335,762 £400,000
41%
£982,412
£659,087
£600,000
Short-Term Variable : Cash Bonus
£800,000
£1,000,000
Long-Term Variable : LTIP
In illustrating potential reward opportunities the following assumptions have been made: (1)
Minimum performance is based on fixed pay only (comprising basic salary and pension from 1 January 2016 and the estimated value of pension and benefits for 2016);
(2)
Target performance is based on fixed pay plus 50% of the maximum values used for the Company’s incentive arrangements;
36
Annual Report and Accounts 2015
Maximum performance is based on: (a) a maximum annual bonus of 100% of base salary; and (b) an LTIP award of 125% of basic salary (presented at face value);
(4)
No share price appreciation or dividend reinvestment has been assumed.
Strategic report
(3)
Approach to recruitment New Executive Directors will be appointed on remuneration packages with the same structure and elements set out in the Directors’ remuneration policy table. On-going incentive pay will be limited to: •
Maximum annual bonus of 100% of salary;
•
Up to 200% of salary LTIP award; and
•
Participation in the Sharesave.
For an internal appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its original terms. In addition, any other on-going remuneration obligations existing prior to appointment may continue, provided that they are put to shareholders for approval at the earliest opportunity.
Loss of office The Committee has considered remuneration for Executive Directors leaving the Company and is committed to applying a consistent and equitable approach to ensure the Company is equitable but pays no more than necessary. The loss of office policy is in line with market practice and will be dependent on whether deemed a ‘good leaver’ or ‘bad leaver’. The ‘good leaver’ policy includes: •
payment in lieu of notice equal to one year’s basic salary or, if termination is part way through the notice period, the amount of salary relating to any unexpired notice to the date of termination. There is an obligation on Directors to mitigate any loss which they may suffer if the Company terminates their service contract;
•
bonus payments for the period worked may be made, subject to the original performance targets, at the discretion of the Committee. Any such payments would be made on the normal payment date;
•
vesting of share scheme awards is not automatic and the Committee retains the discretion to prevent awards from lapsing depending on the circumstances of the departure and the best interests of the Company. Awards which do not lapse on cessation of employment may either vest at that time or on the normal vesting date. These awards will usually be subject to time pro-rating to reflect the unexpired portion of the performance period concerned. Awards that are subject to performance conditions will usually only vest to the extent that these conditions are satisfied; and
•
Executive Directors will also be entitled to a payment in respect of accrued but untaken annual holiday entitlements on termination.
‘Good leaver’ reasons are death, injury, illness or disability, redundancy, retirement, transfer of business resulting in cessation of the individual’s employment within the Group or change of control. No compensation is paid for summary dismissal, save for any statutory entitlements.
Service contracts It is the Board’s policy that Executive Directors are employed on contracts subject to no more than 12 months’ notice from either side. The Board recognises however that it may be necessary in the case of new executive appointments to offer an initial longer notice period, which would subsequently reduce to 12 months after the expiry of the initial period. The service agreements do not have a fixed term. If it becomes necessary to consider termination of a service contract, the Committee will have regard to all the circumstances of the case, including mitigation, when determining any compensation to be paid. Details of the current service contracts are as follows:
Nick Henry Stuart Kilpatrick
Annual Report and Accounts 2015
Contract Date
Notice Period
1 December 2006
12 months
1 July 2010
12 months
37
Financial statements
For external and internal appointments, the Committee may agree that the Company will meet certain relocation and incidental expenses as appropriate.
Governance
For external appointments, the Committee may offer additional cash or share-based elements to replace deferred or incentive pay forfeited by an executive when leaving a previous employer. It would seek to ensure, where possible, that these awards would be consistent with awards forfeited in terms of vesting periods, expected value and performance conditions. Shareholders will be informed of any such payments as soon as practicable following the appointment.
James Fisher and Sons plc
Directors’ remuneration report continued
The Executive Directors are permitted to serve as Non-Executive Directors of other companies, provided the appointment is first approved by the Remuneration and Nominations Committees. Directors are allowed to retain their fees from such appointments. During the period the Executive Directors held no such appointments. Non-Executive Directors do not have service contracts but have a letter of appointment setting out their terms and conditions. Non-Executive Directors are appointed each year for up to 12 months and are entitled to one month’s prior written notice of early termination for which no compensation is payable. Details of the letters are set out below: Date of appointment Letter of appointment
Charles Rice
1 April 2004
1 January 2016
1 February 2011
1 January 2016
1 November 2014
1 January 2016
David Moorhouse
1 August 2013
1 January 2016
Michael Salter
1 August 2013
1 January 2016
Malcolm Paul Aedamar Comiskey
Chairman Fifty per cent of the fee paid to Charles Rice, net of deductions, is used to buy ordinary shares in the Company and these shares must be held throughout his period in office. The shares are purchased in accordance with a trading plan agreed with Investec Bank plc dated 7 March 2013.
38
Annual Report and Accounts 2015
Annual report on remuneration The Committee was chaired by Malcolm Paul during 2015. The Committee also comprised three other independent NonExecutive Directors: Aedamar Comiskey, David Moorhouse and Michael Salter. The Committee members have no personal financial interest other than as shareholders, in the matters to be decided. They have no conflicts of interest arising from cross-directorships with the Executive Directors, nor from being involved in the dayto-day business of the Company.
Strategic report
Remuneration Committee
The Committee operates under clear written terms of reference and confirms that its constitution and operation comply with the provisions of section of the 2014 UK Corporate Governance Code in relation to directors’ remuneration policy and practice and that it has applied the Code throughout the year. The Committee’s terms of reference include: to determine and agree with the Board the framework and policy for Executive Directors and senior managers;
•
to review the appropriateness and relevance of the remuneration policy;
•
to agree the measures and targets for any performance related bonus and share schemes of the Executive Directors;
•
to determine within the terms of the policy the total individual remuneration package of the Executive Directors.
Governance
•
Advisers to the Remuneration Committee New Bridge Street is the principal independent adviser to the Committee. During the year the Committee reviewed market information on Directors’ remuneration published by New Bridge Street and a number of other sources and received advice from New Bridge Street on all matters under consideration by the Committee including remuneration, updates on best practice, legislative requirements and market practice. The Committee is satisfied that the advice provided on remuneration is objective and independent. New Bridge Street’s fees for this work amounted to £21,250.
Implementation of the remuneration policy for 2016 Executive Directors Executive Directors’ remuneration for 2016 is as set out in the policy section. No base salary, benefit or pension increases have been awarded. The maximum bonus opportunity is 100% of base salary. The proposed financial target levels have been set to be challenging and appropriately demanding. The targets are commercially sensitive but it is envisaged that disclosure of the targets and performance against targets will be set out in the 2016 remuneration report. Awards under the 2015 LTIP will be granted to the Executive Directors over shares worth up to 125% of base salary with 70% of the award based on EPS growth targets and 30% based on relative TSR targets. The performance period for the EPS element of the award will run for three years from 1 January 2016 and for the TSR element (measured against the constituents of the FTSE 250 excluding investment trusts), the performance period will be three years from the date of award.
Non-Executive Directors There is no change to Non-Executive Directors’ fees for 2016 which are as follows: 2016 £
2015 £
231,650
231,650
Basic fee
49,900
49,900
Additional fee for Audit Committee Chairman
10,000
10,000
5,000
5,000
Chairman Other Non-Executive Director fees:
Additional fee for the Senior Independent Director and Chairman of Remuneration Committee
Annual Report and Accounts 2015
39
Financial statements
The Committee met three times during the year and details of attendance at Committee meetings are set out on page 29. During the year the Committee has considered the appropriateness and relevance of the remuneration policy, the Executive Directors’ remuneration packages, including base salaries, the grant of share-based incentive awards, the vesting of sharebased incentive awards subject to performance conditions being met and the amount and basis of performance related bonuses. Charles Rice also attended Committee meetings, when invited by the chairman of the Committee, and was consulted on matters relating to the Executive Directors who reported to him.
James Fisher and Sons plc
Directors’ remuneration report continued
Information subject to audit Total remuneration earned by the Executive Directors
Nick Henry
Stuart Kilpatrick
2015 £000
2014 £000
2015 £000
2014 £000
429
410
287
275
Base salary Benefits
14
14
11
11
Pension
49
47
37
36
Bonus in cash
97
287
65
193
Short-term remuneration
589
758
400
515
LTIP – performance
281
211
191
141
37
216
25
144
318
427
216
285
–
301
–
201
907
1,486
616
1,001
LTIP – share appreciation LTIP – total ESOS Total remuneration Benefits 2015
2014
Cash allowance in lieu of car £000
Total £000
Cash allowance in lieu of car £000
Medical insurance £000
Medical insurance £000
Total £000
Nick Henry
13
1
14
13
1
14
Stuart Kilpatrick
10
1
11
10
1
11
23
2
25
23
2
25
Pensions
Pension contributions equivalent to up to 15% of base salary may be paid into personal pension plans, the Company pension scheme or taken as a separate cash allowance, subject to income tax. 2015 Paid as cash allowance £000
Nick Henry Stuart Kilpatrick
40
2014
Paid as pension contribution £000
Total £000
Paid as cash allowance £000
Paid as pension contribution £000
Total £000
49
–
49
47
–
47
–
37
37
–
36
36
49
37
86
47
36
83
Annual Report and Accounts 2015
Annual bonus awards for 2015
(i)
Financial objectives
Performance measure
Performance target
Assessment against targets
Adjusted profit before tax
Growth of 4% - 10%
Not achieved
(ii)
Strategic report
The maximum annual bonus for Executive Directors was 100% of base salary, with 70% based on financial objectives and 30% based on individual achievement and personal objectives. Details of the actual performance against the targets are as follows:
Personal objectives Personal objectives – Set, communicate and lead key management priorities;
Governance
Nick Henry
– Deliver balanced growth via organic development and acquisitions; – Develop management structure including succession planning; – Monitor and manage Group risk profile; – Strengthen management training and graduate development programmes. Stuart Kilpatrick
– Strengthen and improve quality of financial reporting; – Improve internal audit process and risk management; – Develop and maintain good relationships with banks, advisors and investors.
Alongside the headline objectives noted above, each executive is given specific objectives for the year. In 2015 these included: the timely restructuring of our Offshore Oil businesses; the merger of our subsea subsidiaries to form James Fisher Subsea Services; the merger of our Strainstall Monitoring and Testconsult businesses to form James Fisher Testing Services; certain management succession initiatives; improvement initiatives in Angola and other confidential items. Both Executive Directors were assessed to have performed well against these objectives however, in the light of the difficult market conditions and the impact that these have had on the Group, the Committee decided to award 75% of the personal objectives element of the bonus.
Vesting of 2013 LTIP awards The LTIP values included in the table below relate to awards granted on 8 April 2013 which vest on 8 April 2016 dependent on EPS performance over the three year period ended 31 December 2015. Under the performance target which uses a sliding scale, one third of the award vests where growth of diluted earnings per share of RPI plus 9% is achieved over the three year performance period, to full vesting where growth of RPI plus 18% is achieved.
Performance target
Base EPS
EPS at 31 December 2015
EPS growth
Threshold RPI +9%
Maximum RPI +18%
55.1
68.5
24.3%
14.4%
23.4%
Underlying diluted EPS
As a result of meeting the above performance conditions, the gross value of LTIPs that will vest on 8 April 2016 are as follows:
Shares vested
Performance element(1) £000
Share appreciation element(2) £000
Total £000
100%
27,205
281
37
318
100%
18,500
191
25
216
Share price at date of grant(3)
Share price at 31 December 2015(3)
Proportion vesting
Nick Henry
1,034p
1,168p
Stuart Kilpatrick
1,034p
1,168p
(1) The performance element represents the face value of awards that vested. (2) The share appreciation element represents the value due to the change in share price from the date of award to 31 December 2015. (3) The share price at grant is based on a ten day average immediately prior to the date of grant and the share price at 31 December 2015 is based on a three month average.
Annual Report and Accounts 2015
41
Financial statements
– Manage M&A process and due diligence;
James Fisher and Sons plc
Directors’ remuneration report continued
Lapse of 2013 ESOS awards The ESOS awards granted on 9 April 2013, whereby vesting is based on three year relative TSR from grant as measured against the constituents of the FTSE 250 (excluding investment trusts) are expected to lapse on 9 April 2016 based on a calculation as at 31 December 2015 which showed below median performance. TSR at 31 December 2015
Median
Upper quartile
Vesting
35.6%
46.5%
89.7%
0%
Share price at date of grant(1)
Share price at 31 December 2015
Shares granted
Nick Henry
1,028p
1,168p
36,490
Stuart Kilpatrick
1,028p
1,168p
24,813
Proportion of salary
Maximum shares awarded
Share price at grant
Exercise price at grant
Nick Henry
125%
45,433
1,308p
–
Stuart Kilpatrick
125%
30,473
1,308p
–
Performance target
TSR
The 2013 ESOS options that are expected to lapse on 9 April 2016 are as follows:
(1) The share price at grant is based on a three day average immediately prior to the date of grant.
Share awards granted in 2015
LTIPs granted on 5 June 2015
Vesting of the 2015 LTIP award is subject to achievement of performance targets over a three year period with 70% of the award based on EPS targets and 30% based on TSR targets. EPS target performance is measured over the three year period ending on 31 December 2017. The EPS element of the award vests if EPS growth at least equals the RPI increase over the period plus 9%. At the threshold level, 25% of the EPS element of the award will vest. Full vesting is achieved if EPS growth is greater than or equal to 18% in excess of the RPI increase over the vesting period. The TSR element of the award is subject to the Company’s TSR performance relative to the FTSE 250 index excluding investment trusts, over the three year period from 6 April 2015. If at the end of the period the Company ranks in the upper quartile, all of the TSR element of the award will vest. If the ranking is at median level, 25% of TSR element of the award will vest. No element of the TSR part of the award will vest for performance below the median. For intermediate ranking, a proportionate part of each award will vest reducing on a straight-line basis. Any part of the award that does not vest at the end of a performance period will lapse immediately.
42
Annual Report and Accounts 2015
Aligning pay with performance (unaudited) Strategic report
The following graph shows the total shareholder return compared to the FTSE 250 and the FTSE Small Cap indices excluding investment trusts.
Growth in the value of £100 holding over seven years 450
Total shareholder return Source: Thomson Reuters
400
300
Governance
Total shareholder return
350
250 200 150 100 50
Financial statements
0 31 Dec 08
31 Dec 09
31 Dec 10
31 Dec 11
31 Dec 12
31 Dec 13
31 Dec 14
31 Dec 15
The above graph shows James Fisher and Sons plc’s total shareholder return over the 7 years to 31 December 2015 compared to the total shareholder return for the FTSE 250 Index and the FTSE Small Cap Index. These Indices show the share price growth plus reinvested dividends. The other points plotted are the total shareholder return values at intervening financial year-ends.
James Fisher and Sons plc
FTSE 250
FTSE Small Cap
Remuneration of highest paid Executive Director compared with growth in underlying diluted earnings per share 2015
2014
2013
2012
2011
2010
2009
(7)%
13%
18%
15%
16%
13%
5%
492
471
439
355
399
381
380
Annual change in underlying diluted EPS (pence) Salary, pensions and benefits (£000) Annual performance bonus (£000)
97
287
263
210
268
256
77
Short-term remuneration (£000)
589
758
702
565
667
637
457
Share schemes (£000)
318
728
691
781
534
124
90
CEO total remuneration (£000)
907
1,486
1,393
1,346
1,201
761
547
23%
100%
100%
100%
100%
100%
30%
100%
100%
100%
100%
100%
100%
100%
–
100%
100%
100%
40%
–
60%
Actual bonus as a percentage of the maximum LTIP vesting as a percentage of the maximum ESOS vesting as a percentage of the maximum
2009 – 2011 represent the remuneration of former Executive Chairman, Tim Harris. 2012 – 2015 represent Nick Henry’s remuneration.
Change in CEO’s pay compared to James Fisher employees The table below shows the percentage year on year change in salary, benefits and annual bonus earned between the year ended 31 December 2014 and the year ended 31 December 2015 for the Chief Executive Officer compared to the average increase of the Group’s UK employees. The Committee chose the Group’s UK employees for pay comparison with the Chief Executive Officer as the most meaningful comparator group.
Annual Report and Accounts 2015
43
James Fisher and Sons plc
Directors’ remuneration report continued
Chief Executive Officer Average increase for the Group’s UK employees
Salary
Benefits (including pension)
Annual bonus
4.5% 3.0%
3.0% 3.0%
(66%) –
2015 £m
2014 £m
Change £m
110 11
111 10
(1) 1
Relative importance of remuneration (unaudited)
Total employee remuneration Total dividends paid
Interests in shares The interests of Directors and their connected persons in ordinary shares as at 31 December 2015, including any interests in share options and shares provisionally awarded under the LTIP, ESOS and Sharesave are as follows:
Charles Rice Nick Henry Stuart Kilpatrick Malcolm Paul
Beneficial Number
LTIP Number
ESOS Number
Sharesave Number
Vested but unexercised share options ESOS Number
22,016 158,917 28,210 5,000
– 93,294 62,827 –
– 65,589 44,330 –
– 1,750 – –
– 227,739 65,082 –
Exercised during the year Number
– – – –
Executive Directors’ interest in options over shares
Nick Henry
At 31 December 2015 Number
Exercise price
Date from which exercisable
Expiry date
29,615 17,647 26,314 56,753 49,105 48,305 1,750 36,490 29,099
468p 596p 354p 410p 522p 567p 602p 1,028p 1,049p
23.03.09 02.04.10 20.03.12 19.03.13 30.03.14 09.04.15 01.06.17 09.04.16 10.04.17
23.03.16 02.04.17 20.03.19 19.03.20 30.03.21 09.03.22 30.11.17 09.04.23 10.04.24
522p 567p 1,028p 1,409p
30.03.14 09.03.15 09.04.16 10.04.17
30.03.21 09.03.22 09.04.23 10.04.24
295,078 Stuart Kilpatrick
32,808 32,274 24,813 19,517 109,412
Total
404,490
All options relate to the 2005 ESOS scheme other than 1,750 share options held by Nick Henry under the Sharesave scheme. The 2005 ESOS expired in April 2015 and was not renewed. The last awards were made on 10 April 2014. There were no options exercised during the year and therefore no gains made (2014: £112,382). The interest of the Directors’ options over ordinary shares under the ESOS and Sharesave have not changed since the year end.
44
Annual Report and Accounts 2015
Executive Directors’ interest in LTIP share awards
Stuart Kilpatrick
Vesting during year Number
31 December 2015 Number
Vesting Date
36,340 27,205 20,656 –
– – – 45,433
(36,340) – – –
– 27,205 20,656 45,433
6 April 2015 8 April 2016 6 April 2017 6 April 2018
84,201
45,433
(36,340)
93,294
24,280 18,500 13,854 –
– – – 30,473
(24,280) – – –
– 18,500 13,854 30,473
56,634
30,473
(24,280)
62,827
140,835
75,906
(60,620)
156,121
6 April 2015 8 April 2016 6 April 2017 6 April 2018
Governance
Total
Granted during year Number
Strategic report
Nick Henry
1 January 2015 Number
The scheme is unapproved for HM Revenue and Customs purposes. As at 1 March 2016, being the last practical date prior to the publication of this report, there were no changes to the Executive Directors’ interest in LTIP share awards.
The Remuneration Committee has regard to the limits on dilution advised by the Investment Association and contained in the relevant share plan rules and reviews the number of shares committed and headroom available under share incentive schemes in accordance with these dilution limits. On vesting, the awards of shares under the LTIP are satisfied by the shares held by the James Fisher and Sons plc Employee Share Trust (Trust). During the year the Trust purchased 120,000 ordinary shares on the open market (2014: 150,000) and at 31 December 2015 the Trust held 148,275 (2014: 153,192) ordinary shares. During the year 65,118 shares were issued by the Company to satisfy obligations under the ESOS scheme.
Share price during the financial year The middle market price of one ordinary share in the Company during the financial year ranged from 914p to 1,436p and at 31 December 2015 was 1,168p.
Non-Executive Directors’ remuneration Total fees
Charles Rice Malcolm Paul Aedamar Comiskey Michael Everard David Moorhouse Michael Salter
– appointed on 1 November 2014 – retired 30 April 2014
2015 £000
2014 £000
232 65 50 – 50 50
226 61 8 16 48 48
Shareholder voting The Company is committed to on-going shareholder dialogue and takes an active interest in voting outcomes. Where there are substantial votes against resolutions in relation to Directors’ remuneration, the Company seeks to understand the reasons for any such vote and will report any actions in response to it. The following table sets out actual voting in respect of our 2014 Directors’ remuneration report at the 2015 AGM: Resolution
To approve the remuneration policy report To approve the Directors’ remuneration report
Votes for
% for
Votes against
% against
Total votes cast
Votes withheld (abstentions)
38,714,064
98.3
660,835
1.7
39,374,899
794,861
39,107,208
99.2
309,151
0.8
39,416,359
753,401
Malcolm Paul Chairman of the Remuneration Committee 1 March 2016
Annual Report and Accounts 2015
45
Financial statements
Sourcing of shares and dilution
James Fisher and Sons plc
Directors’ report
James Fisher and Sons plc is a public limited company registered in England with the registered number 211475 and has its registered office is at Fisher House, PO Box 4, Barrow-in-Furness, Cumbria, LA14 1HR. The Annual Report and Accounts have been drawn up and presented in accordance with UK Company law and the liabilities of the Directors in connection with the report shall be subject to the limitations and restrictions provided by such law.
Principal activities, development and performance The Strategic report on pages 1 to 23 includes a description and review of the Group’s activities and provides an indication of the likely future trends and factors that might affect the Group’s development and performance. The report also details the principal risks facing the Company and the Group’s approach to mitigating such risks. The Strategic report together with Board of Directors, Corporate governance report, the Audit Committee report and the Directors’ remuneration report all form part of the Directors’ report. The Directors’ report and Strategic report comprises the ‘management report’ for the purposes of the Financial Services Authority’s Disclosure and Transparency Rules.
Annual General Meeting The Annual General Meeting (AGM) of the Company will be held at 11.00 am on 28 April 2016 at the Abbey House Hotel, Abbey Road, Barrow-in-Furness, Cumbria, LA13 0PA. The Notice of AGM is set out on pages 99 to 104.
Substantial shareholders At 23 February 2016 the Company had been notified of the following interests of 3% or more of the voting rights in its issued share capital: Ordinary Shares Shareholder
Rowland Frederick Hart Jackson
Preference Shares
Number
%
Number
%
8,803,093
17.55
–
–
5,106,592
10.18
–
– 100.00
(non-beneficial) Schroder Investment Management Therapia Investments Limited
3,632,220
7.24
100,000
Aberdeen Asset Management Limited
3,332,352
6.64
–
–
Montanaro Investment Managers
2,447,600
4.88
–
–
Baillie Gifford & Co Limited
2,023,534
4.03
–
–
Total number of shares in issue
25,345,391
50.52
100,000
100.00
50,164,133
100.00
100,000
100.00
Results and dividends The Group’s profit after tax for the financial year was £40.7m (2014: £40.5m). The results are shown fully in the consolidated financial statements on pages 55 to 58 and summarised in the Financial review on pages 8 and 9. The Directors recommend a final dividend of 16.0p per share (2014: 14.9p) making a total dividend of 23.8p per share for the year (2014: 22.0p). If approved, the final dividend will be paid on 6 May 2016 to ordinary shareholders who are on the register on 8 April 2016.
Post balance sheet events There have been no post balance sheet events since 31 December 2015.
Share capital The structure and details of the Company’s share capital are set out in note 19 on page 71.
46
Annual Report and Accounts 2015
Ordinary shares
certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws and market requirements relating to close periods); and
•
pursuant to the Listing Rules of the Financial Services Authority, whereby certain employees of the Company require the approval of the Company to deal in the Company’s shares.
Preference shares The 3.5% cumulative preference shares of £1 each carry a fixed cumulative dividend of 3.5% per annum, payable in priority to any dividend on the ordinary shares and payable half yearly in arrears on 30 June and 31 December. The preference shares carry one vote for every £1 in nominal amount. On a winding up of the Company the preference shareholders have a right to receive, in preference to payments to ordinary shareholders, repayment of the capital paid up on such shares plus any accrued dividend.
Financial statements
The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities or on voting rights.
Shares held by the Employee Share Trust As at 31 December 2015, the James Fisher and Sons plc Employee Share Trust, held 148,275 ordinary shares (2014: 153,192) of the Company in trust against future Company obligations for share incentive schemes referred to in this report. During the year, the Trust purchased 120,000 ordinary shares on the open market (2014: 150,000). The rights attaching to these shares are controlled by independent trustees, who may take into account any recommendation by the Company.
Powers of Directors The powers of the Directors are determined by the Company’s Articles, the Companies Act 2006 and the directions given by the Company in general meeting. The Directors are authorised to issue and allot ordinary shares, to dis-apply statutory pre-emption rights and to make market purchases of the Company’s shares. The Directors will be seeking to renew the authorities granted to them in prior years at the forthcoming AGM. Any shares purchased may be cancelled or held as treasury shares.
Purchase of own shares At the AGM held on 30 April 2015, the Company was given authority to purchase up to 2,504,951 of its ordinary shares until the date of its next AGM. No purchases were made during the year by the Company.
Directors The biographical details together with their skills and experience of our Directors who served on the Board for the financial year ended 31 December 2015 are set out on page 24.
Annual Report and Accounts 2015
Governance
•
Strategic report
The Company’s issued ordinary shares are fully paid and rank equally in all respects. Subject to rights attaching to existing shares, any share may be issued with such rights or restrictions as the Company may by advisory resolution determine, or if the Company has not so determined, as the Directors may determine. In addition to those rights conferred by law the holders of ordinary shares of 25p each are entitled to receive dividends when declared, the Company’s Reports and Accounts, to attend and speak at general meetings of the Company, to appoint proxies and to exercise voting rights. These rights and obligations are set out in the Company’s Articles of Association (Articles). Other than those specific provisions set out in the Articles, there are no restrictions on the transfer of ordinary shares in the Company or on the exercise of voting rights attached to them except that:
47
James Fisher and Sons plc
Directors’ report continued
Directors’ interests The beneficial interests of the Directors’ in the share capital of the Company are: Holdings of ordinary shares of 25p each At 31 December 2015 Number
Charles Rice Nick Henry
At 31 December 2014 Number
22,016
16,781
158,917
139,657
28,210
15,289
5,000
5,000
Stuart Kilpatrick Malcolm Paul (1)
Between 31 December 2015 and 1 March 2016, there were no changes to the Directors’ shareholdings;
(2)
No Director has an interest in the preference shares of the Company, or in the shares of any subsidiary or associated undertaking.
Appointment, retirement and re-election of Directors A Director may be appointed by an ordinary resolution of shareholders in general meeting following nomination by the Board or a member (or members) entitled to vote at such meeting, or following retirement by rotation if the Director chooses to seek re-election at a general meeting. In addition, the Directors may appoint a Director to fill a vacancy or as an additional Director, provided that the individual retires or at the next AGM. A Director may be removed by the Company in certain circumstances set out in the Articles (for example bankruptcy or resignation), or by an ordinary resolution of the Company in general meeting. Our Articles provide that any Director who has held office for more than three years since his last appointment must offer himself or herself up for re-election at the AGM and at least one-third of the Board is subject to re-election at each AGM. However, having regard to the recommendation contained in the Code that all Directors should be subject to annual election by shareholders, all of our Directors will retire at the 2015 AGM and stand for re-election.
Directors’ and officers’ liability insurance The Company maintains directors’ and officers’ liability insurance for the Directors and officers of the Company and its subsidiaries and, to the extent permitted by section 236 of the Companies Act 2006, the Directors’ may be granted indemnity by the Company pursuant to the Company’s Articles. Copies of the Company’s Articles may be obtained from the Company Secretary and are available for inspection at the Company’s registered office during normal business hours.
Directors’ conflict of interest Under the Companies Act 2006, a director must avoid a situation where a direct or indirect conflict of interest may occur. The Board has adopted established procedures to address the management of any potential and actual conflicts of interest. Stuart Kilpatrick, Group Finance Director, is a trustee of the Group’s Shore Staff Pension Scheme. This role could give rise to a situation where there is a conflict of interest and after due consideration, the Board approved him to act as a trustee. Were a conflict to arise, Stuart Kilpatrick is required to excuse himself from participating in the relevant trustee discussion and decision making process.
Additional information for shareholders The Articles may only be amended by a special resolution at a general meeting of the shareholders.
Employment of people with disabilities People with disabilities are given full and fair consideration, having regard to their particular aptitudes and abilities, when applying for vacancies. In addition to complying with legislative requirements, the Group strives to ensure that disabled employees are treated fairly and that their training, career development and promotion needs are met. For those employees who become disabled during the course of their employment, the Group will provide support, whether through re-training or re-deployment, so that they will continue to be employed, wherever practicable, in the same job, or if this is not practicable, every effort will be made to find suitable alternative employment.
48
Annual Report and Accounts 2015
Employment policies
Developing and maintaining employee engagement with the Company is important. The Group communicates with its employees on matters of concern to them as employees and on the financial and economic factors affecting the performance of the Company principally through regular presentations by senior management and by means of publication of a Company newsletter. Where decisions are being made which are likely to affect employees interests, such employees or their representatives are consulted so that their views can be taken into account. The Group also operates a number of option schemes and long-term incentive plans to encourage employees to participate in the ownership of the Company.
The Company is a guarantor of all of the Group’s bilateral bank facilities which upon a change of control could be withdrawn. The Singapore Submarine Rescue Service Agreement made between James Fisher Singapore PTE Ltd. and First Response Marine PTE Ltd. dated 17 October 2008 may terminate upon a change of control of the Company or James Fisher Singapore PTE Ltd. The rules of the Company’s LTIP, ESOS and Sharesave schemes set out the consequences of a change of control on the rights of participants under those schemes. Participants are generally able to exercise their options on a change of control, provided that the relevant performance conditions have been satisfied. Except as provided above, the Company is not party to any agreements which take effect, alter or terminate in the event of a change of control of the Company. Furthermore there are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that arise in the event of a change of control of the Company.
Financial instruments, research and development, overseas branches Information on the Group’s financial risk management objectives and policies, including its exposure to price risk, credit risk, liquidity risk and cash flow risk can be found in note 27. The Group is committed to continue investing in research and development. Details of the Group’s expenditure on research and development is set out in notes 4 and 13. The Group does not have any overseas branch offices.
Information required by UK listing rule 9.8.4 There are no disclosures to be made under listing rule 9.8.4.
Going concern The Group’s business activities, together with the factors likely to affect its future development, the financial position of the Group and a description of the principal risks and uncertainties are set out in the Strategic report on pages 1 to 23. The Group’s primary sources of funding are bilateral facilities with a small core group of banks. These bilateral facilities totalled £185.0m at 31 December 2015 (2014: £162.5m). A £20.0m facility expired in January 2016 and the remaining facilities fall due for renewal over the next 5 years. Compliance with banking covenants is tested half yearly for the ratio of net debt: EBITDA, interest cover and fixed charge cover. No breaches in covenants occurred during the year. The Group meets its day to day working capital requirements through operating cash flows, with borrowings in place to fund acquisitions and capital expenditure. The Group had £67.4m (2014: £81.4m) of undrawn committed facilities as at 31 December 2015. The Group’s forecasts and projections, taking account of reasonable changes in trading performance, confirm that the Group should be able to operate within the level of its current banking facilities.
Annual Report and Accounts 2015
49
Financial statements
Significant agreements – change of control
Governance
Employee involvement
Strategic report
The Chief Executive Officer is the Board member responsible for employee matters and he is assisted by the Group Head of Human Resources. The Group values the diverse backgrounds of all its people and works to create an open atmosphere of trust, honesty and respect. Harassment or discrimination, including that involving race, colour, religion, gender, age, disability, sexual orientation or any other similarly protected status, is not acceptable. The Group is committed to providing equal employment opportunities for all of its people and all job applicants based on abilities of the employee and the needs of the business Group-wide. It is Group policy to comply with all applicable laws governing employment practices and not to discriminate on the basis of any unlawful criteria. Employment arrangements are intended to be fair, equitable and consistent with the skills and abilities of the employee and the needs of the business. The Group also actively encourages the training of its employees through participation in industry training schemes. Additionally, both in-house and external training is provided for staff. The Group’s diversity policy is reviewed annually and approved by the Board and is available on the Company’s website.
James Fisher and Sons plc
Directors’ report continued
The Group uses cash flow forecasts derived from budgets, forecasts and medium-term planning to identify headroom under the covenant tests. After making enquiries and having evaluated the on-going trading of the businesses, the Directors have reasonable expectation that the Group has adequate resources to continue to operate for a period considered to be at least 12 months from the date of this report. Accordingly, the Directors consider it appropriate to continue to adopt the going concern basis of accounting in preparing the Annual Report and Accounts.
Viability statement The Directors confirm that they have a reasonable expectation that the Group will be able to continue to operate and to meet its liabilities, as they fall due, for the three years ending 31 December 2018. The assessment period has been chosen because it is consistent with the Group’s planning process whereby the Board reviews the Group’s strategy and its detailed three year plan. This is reviewed and considered in light of the Group’s current position and prospects together with factors that might affect the three year plan. The Board carefully assesses the performance and prospects of each business regarding entering new markets and geographies, current and expected growth rates, prospective new projects and the timing of such projects and the robustness of individual business performance. The Group three year plan overlays a number of assumptions and sensitivities which are reviewed by the Board; this includes a review of whether additional bank facilities will be required and available in the plan period. The review also considers the principal risks facing the Group as set out on page 11 and the potential impact on its business model, future performance, solvency and liquidity over the period. The potential consequence of the fall in world oil prices, global economic uncertainty and the Group’s ability to mitigate the impact of any of these risks was a particular focus in 2015. The Directors have also taken account of the diverse markets and geographies in which the Group’s businesses operate, and their ability to react quickly to change, to help minimise the effect of the key risks effecting the Group.
Auditor Each Director in office at the date of approval of this Directors’ report confirms that: •
so far as he is aware, there is no relevant audit information of which the Company’s auditors are unaware; and
•
he has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
A resolution for the re-appointment of KPMG LLP as auditor of the Company will be proposed at the forthcoming AGM.
Directors’ responsibility statement The Directors are responsible for preparing the Annual Report and the Group and Company financial statements each financial year in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements on the same basis. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of their profit or loss for that period. In preparing each of the Group and Company financial statements, the Directors are required to: •
select suitable accounting policies and then apply them consistently;
•
make judgements and estimates that are reasonable and prudent;
•
state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
•
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing the Strategic report, Directors’ report, Directors’ remuneration report and Corporate governance report that complies with that law and those regulations.
50
Annual Report and Accounts 2015
Strategic report
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ responsibility statement in respect of the Annual Report We confirm that to the best of our knowledge: the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
•
the management report which comprises the Strategic report and the Directors’ report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Governance
•
We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
N P Henry Chief Executive Officer
S C Kilpatrick Group Finance Director Financial statements
On behalf of the Board of Directors 1 March 2016
Annual Report and Accounts 2015
51
James Fisher and Sons plc
Independent auditor’s report To the members of James Fisher and Sons plc only
Opinions and conclusions arising from our audit 1
Our opinion on the financial statements is unmodified
We have audited the financial statements of James Fisher and Sons plc for the year ended 31 December 2015 set out on pages 55 to 95. In our opinion: •
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2015 and of the Group’s profit for the year then ended;
•
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);
•
the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
2
Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on our audit were consistent with the prior year and as follows:
Operating in overseas jurisdictions with uncertain legislation Refer to page 31 (Audit Committee report) •
The risk: The Group is multinational and is developing its operations in a number of emerging markets. Operating in these territories presents increased contractual, operational and financial risks due to the need to comply with potentially uncertain regulatory and legislative environments, including legislation relating to tax. Breaches of compliance or inappropriate assumptions over provisioning for the uncertain legislation could have a significant effect on the results and financial position of the Group and is one of the judgemental areas our audit is focused on. Also during the year the principal customer of one of the Group’s overseas subsidiaries terminated its contract thereby creating uncertainty around the timing and value of settlement.
•
Our response: Our audit procedures included using our own local specialists where appropriate to analyse and challenge the assumptions used to determine provisions for legal and tax matters based on their knowledge and experience of local regulations and practices. We considered the exposure to breaches of legislation by making appropriate enquiry of the Group in relation to compliance with laws and regulations and the existence and status of any significant legal matters. We also inspected the compliance logs and reports returned by overseas locations to identify actual and potential noncompliance with laws and regulations, both those specific to the Group’s business and those relating to the conduct of the business generally. Where significant matters were identified we obtained confirmations from the Group’s legal counsel. We inspected correspondence, where available, with the local tax authorities and using our experience of local practices and court interpretations we assessed the assumptions made by the Group in arriving at any potential tax provision and terms of relevant contracts where there are material local indirect taxes. In relation to the termination we have reviewed the contract with the customer to determine the Group’s contractual rights, assessed the Group’s estimate of the likely financial outcome, considered the associated disclosures in the financial statements and also inspected external legal advice provided to the Group.
Accounting for acquisitions Refer to page 31 (Audit Committee report), page 89 (accounting policies) and page 78 (financial disclosures) •
The risk: The Group has assessed the fair value of assets and liabilities acquired and estimated the fair value of contingent consideration payable. Certain balances can be determined based on estimates and assumptions about the future performance of the acquired businesses. As there is a significant level of judgement involved in estimating the fair value of the intangible assets and contingent consideration, we consider this to be a significant audit risk. There is also risk that the Group has not appropriately re-measured the provisional acquisition accounting notably in respect of contingent considerations payable on acquisitions made.
•
Our response: We challenged the assumptions and methodologies used by the Group to derive the fair value of intangible assets. We consulted with our valuation specialists to assist us in considering the approach taken by the Group, assessed key assumptions and obtained corroborative evidence for the explanations provided by comparing key assumptions to market data, underlying accounting records, past performance of the acquired business, our past experience of similar transactions and the Group’s forecasts supporting the acquisitions. We also considered the adequacy of the disclosure of the fair value of acquired intangible assets. In addition we assessed whether trade and assets acquired in a transaction constituted a business in accordance with the definition in IFRS 3, Business Combinations. With respect to contingent consideration our work was focused on the forecast results of businesses acquired, which is the basis on which the estimate of contingent consideration is determined. The assumptions underlying those forecasts were compared with historical trading performance, results since the acquisition date, the order book at year end and the Group’s planned development of the businesses. We also assessed the Group’s recalculation of contingent consideration payable and the adequacy of the Group’s disclosures in relation to contingent consideration.
Goodwill £140.4m (2014: £114.4m) Refer to page 31 (Audit Committee report), page 89 (accounting policy) and page 66 (financial disclosures) •
The risk: There is a risk of irrecoverability of the Group’s goodwill balance due to varying levels of demand in certain markets. An impairment assessment of goodwill is carried out annually by the Group by assessing the value in use of Group’s of cash generating units (CGUs) which requires significant assumptions about future developments. Due to the inherent uncertainty involved in forecasting and discounting future cash flows, which are the basis of the assessment of recoverability, this is one of the key judgemental areas that our audit concentrated on.
•
Our response: In this area our audit procedures included testing the Group’s budgeting procedures and the principles and integrity of the Group’s discounted cash flow model. This included comparison of the key assumptions to external data as well as our own assessments in relation to key inputs such as revenue growth, gross margin assumptions, cost inflation and long-term growth rates based on our knowledge of the industry. We considered the historical accuracy of the Group’s growth assumptions and used external data and our own valuation specialists when assessing the discount rate applied. We compared the Group’s market capitalisation to the valuation derived from the forecasts used in the impairment calculations to assess their reasonableness. We further critically assessed the sensitivities applied by the Group. We also assessed whether the Group’s disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflects the risks inherent in the valuation of goodwill.
52
Annual Report and Accounts 2015
Revenue £437.9m (2014: £444.8m) Refer to page 31 (Audit Committee report), page 89 (accounting policy) and page 62 (financial disclosures)
•
Our response: Our audit procedures included testing the Group’s internal controls over revenue. We inspected the terms of significant sales contracts to assess whether they were consistent with the detailed calculations being considered. When assessing the stage of completion on contracts we agreed amounts recognised to confirmatory evidence on a sample basis. This included the agreement of actual costs incurred to invoice and the assessment of any judgements applied in the projection of total contract costs through consideration of the Group’s historical experience of costs on similar contracts. For individually significant contracts we formed our own view of the nature and level of eligible recharges and compared this to the Group’s assessment. We also considered the adequacy of the Group’s revenue disclosures including the accounting policy.
3
Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at £2.0m (2014: £2.2m), determined with reference to a benchmark of Group profit before tax of £46.2m (2014: £49.2m), of which it represents 4.3% (2014: 4.5%). We report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.1m (2014: £0.1m), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Governance
The risk: Where services rendered are provided through long-term contracts and are not completed at the balance sheet date, revenue is recognised in proportion to the stage of completion of the transaction measured by reference to the proportion of total expected costs incurred. The level of total expected costs to be incurred on each contract is estimated by the Group and includes certain judgements as contracts may run over a number of accounting periods and include forecasts in relation to future costs including labour and materials which are not yet contractually agreed. Some contracts for services allow for certain costs to be recharged to customers which requires a level of judgement to be applied as to the eligibility of such costs.
Strategic report
•
Of the Group’s 124 (2014: 107) reporting components, we subjected 46 (2014: 51) to audits for Group reporting purposes. We conducted reviews of financial information (including enquiry) at a further 16 (2014: 30) non-significant components on the basis of other qualitative and quantitative factors based on our audit judgement. These components were not individually financially significant enough to require an audit for Group reporting purposes; however, they were covered in our audit scope in order to provide further coverage over the Group’s results. Number of components
Group revenue
Group profit before tax
Group total assets
Audits for Group reporting purposes Reviews of financial information (including enquiry)
46 (2014: 51) 16 (2014: 30)
85% (2014: 90%) 9% (2014: 8%)
84% (2014: 87%) 10% (2014: 7%)
86% (2014: 87%) 7% (2014: 9%)
Total
62 (2014: 81)
94% (2014: 98%)
94% (2014: 94%)
93% (2014: 96%)
The Group audit team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group audit team approved the component materialities, which ranged from £0.1m to £0.5m (2014: £0.2m to £1.0m), having regard to the mix of size and risk profile of the Group across the components. The work on 29 (2014: 48) of the 62 (2014: 81) components was performed by component auditors and the rest by the Group audit team. Telephone conferences were held with these component auditors at the locations which were not audited directly by the Group audit team. At these meetings, the findings reported to the Group audit team were discussed in more detail, and any further work required by the Group audit team was then performed by the component auditor.
4
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion: •
the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and
•
the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
•
the information given in the Corporate governance report set out on page 28 with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements.
5
We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to: •
the Directors’ statement of viability on page 50, concerning the principal risks, their management, and, based on that, the Directors’ assessment and expectations of the Group’s continuing in operation over the 3 years to 31 December 2018; or
•
the disclosures in note 1 of the financial statements concerning the use of the going concern basis of accounting.
6
We have nothing to report in respect of the matters on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading. In particular, we are required to report to you if: •
we have identified material inconsistencies between the knowledge we acquired during our audit and the directors’ statement that they consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; or
•
the Audit Committee report does not appropriately address matters communicated by us to the Audit Committee.
Annual Report and Accounts 2015
53
Financial statements
The components within the scope of our work accounted for the following percentages of the Group’s results:
James Fisher and Sons plc
Independent auditor’s report continued
Under the Companies Act 2006 we are required to report to you if, in our opinion: •
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
•
the Parent Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or
•
certain disclosures of Directors’ remuneration specified by law are not made;
•
we have not received all the information and explanations we require for our audit; or
•
a corporate governance statement has not been prepared by the Company.
Under the Listing Rules we are required to review: •
the Directors’ statements, set out on page 50, in relation to going concern and longer-term viability; and
•
the part of the Corporate governance report on page 25 relating to the Company’s compliance with the eleven provisions of the 2014 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities As explained more fully in the Directors’ responsibilities statement set out on pages 50 and 51, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
David Bills (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 1 St Peters Square Manchester M2 3AE 2 March 2016
54
Annual Report and Accounts 2015
James Fisher and Sons plc
Consolidated income statement for the year ended 31 December 2015
Group revenue Cost of sales
4
Year ended 31 December 2014 –––––––––––––––––––––––––––––––––––––––––––– Before separately Separately disclosed disclosed items items Total £000 £000 £000
-
437,930 (307,208)
444,799 (307,290)
-
444,799 (307,290)
15 5
130,722 (85,219) 87 -
5,926
130,722 (85,219) 87 5,926
137,509 (86,158) 186 -
2,381
137,509 (86,158) 186 2,381
Operating profit Loss on sale of business Net finance expense
4 5 7
45,590 (4,343)
5,926 (959) -
51,516 (959) (4,343)
51,537 (4,684)
2,381 -
53,918 (4,684)
Profit before taxation Income tax
8
41,247 (5,903)
4,967 396
46,214 (5,507)
46,853 (8,994)
2,381 243
49,234 (8,751)
Profit for the year
35,344
5,363
40,707
37,859
2,624
40,483
Attributable to: Owners of the Company Non-controlling interests
34,522 822
5,363 -
39,885 822
37,447 412
2,624 -
40,071 412
35,344
5,363
40,707
37,859
2,624
40,483
Gross profit Administrative expenses Share of post tax results of joint ventures Acquisition related income and (expense)
Basic Diluted
10 10
pence
pence
79.7 79.2
80.2 79.2
Consolidated statement of other comprehensive income for the year ended 31 December 2015 Year ended 31 December 2015 Notes £000
Year ended 31 December 2014 £000
40,707
40,483
(8,596) 813 1,635
(2,126) 316
(6,148)
(1,810)
(4,587) 836 354 77 (220)
(4,372) (2,367) (133) (35) 450
Other comprehensive income for the year, net of income tax
(3,540) (9,688)
(6,457) (8,267)
Total comprehensive income for the year
31,019
32,216
Attributable to: Owners of the Company Non-controlling interests
30,067 952
31,761 455
31,019
32,216
Profit for the year Items that will not be classified to the income statement Remeasurement loss on defined benefit pension schemes Actuarial gain in defined benefit pension schemes Deferred tax on items that will not be reclassified Items that may be reclassified to the income statement Exchange differences on foreign currency net investments Effective portion of changes in fair value of cash flow hedges Effective portion of changes in fair value of cash flow hedges in joint ventures Net changes in fair value of cash flow hedges transferred to income statement Deferred tax on items that may be reclassified
Annual Report and Accounts 2015
22 22
27 15 8
55
Financial statements
Earnings per share
Governance
437,930 (307,208)
Strategic report
Notes
Year ended 31 December 2015 –––––––––––––––––––––––––––––––––––––––––––– Before separately Separately disclosed disclosed items items Total £000 £000 £000
James Fisher and Sons plc
Consolidated and Company statement of financial position at 31 December 2015
Group Company ––––––––––––––––––––––––––––––––––––––– ––––––––––––––––––––––––––––––––––––––– 31 December 2015 31 December 2014 31 December 2015 31 December 2014 Notes £000 £000 £000 £000 Non-current assets Goodwill Other intangible assets Property, plant and equipment Investment in joint ventures Investments in subsidiaries Available for sale financial assets Deferred tax assets
12 13 14 15 15 16 9
140,414 16,041 127,594 6,250 1,478 3,189
114,378 12,752 116,629 9,147 1,478 2,694
6,333 302,594 1,368 4,277
6,320 278,000 1,368 5,207
294,966
257,078
314,572
290,895
47,436 141,734 2 22,962
40,656 117,644 49 17,719
8,252 2 7,629
4,673 3,123 49 402
212,134
176,068
15,883
8,247
507,100
433,146
330,455
299,142
12,541 25,525 (1,613) (11,354) 192,908
12,525 25,238 (1,988) (7,684) 174,663
12,541 25,525 (1,613) (2,290) 143,254
12,525 25,238 (1,988) (3,043) 120,948
Equity attributable to owners of the Company Non-controlling interests
218,007 2,388
202,754 1,436
177,417 -
153,680 -
Total equity
220,395
204,190
177,417
153,680
8,728 26,956 100 116,645 153
9,585 21,806 100 79,899 545
19,090 100 116,550 -
19,133 100 79,865 -
152,582
111,935
135,740
99,098
125,381 7,190 1,446 106
105,991 8,635 2,341 54
12,633 336 1,448 2,881
20,079 2,341 23,944
134,123
117,021
17,298
46,364
Total liabilities
286,705
228,956
153,038
145,462
Total equity and liabilities
507,100
433,146
330,455
299,142
Current assets Inventories Trade and other receivables Corporate tax receivable Derivative financial instruments Cash and short-term deposits
17 18 27
Total assets Equity and liabilities Capital and reserves Called up share capital Share premium Treasury shares Other reserves Retained earnings
Non-current liabilities Other liabilities Retirement benefit obligations Cumulative preference shares Loans and borrowings Deferred tax liabilities
Current liabilities Trade and other payables Current tax Derivative financial instruments Loans and borrowings
19
20
21 22 19 25 9
21 27 25
These accounts were approved by the Board of Directors on 1 March 2016 and signed on its behalf by:
N P Henry Chief Executive Officer Company number 211475
56
Annual Report and Accounts 2015
James Fisher and Sons plc
Consolidated and Company cash flow statement for the year ended 31 December 2015
46,214
49,234
39,388
30,250
24,442 1,355 (417) 959 (8,491) 4,343 (87) 214 (19,911) (6,073) 3,095
22,069 700 (1,101) (4,100) 4,684 (186) 1,226 (17,525) 7,092 (1,422)
850 692 (45) (1,193) (7,684)
744 464 838 (2,164) 3,426
(4,676)
(2,316)
(2,466)
42,149 (1,325) (8,828)
55,995 (700) (5,610)
29,692 2,661
31,092 1,565
Cash flow from operating activities
31,996
49,685
32,353
32,657
Investing activities Dividends from joint venture undertakings Proceeds from the sale of property, plant and equipment Finance income Acquisition of subsidiaries, net of cash acquired Proceeds from the sale of business Acquisition of property, plant and equipment Development expenditure
1,089 2,120 236 (25,933) 88 (19,597) (2,704)
641 5,841 197 (11,337) (32,184) (2,233)
3,197 (2,351) (863) -
3,453 (866) -
(44,701)
(39,075)
32,336
35,244
303 (3,603) -
(3,694) -
303 (3,413) (21,984)
(4,337) (29,347)
(2,590) (102) 35,807 (11,364)
(2,936) (546) 1,720 (10,331)
(4,036) 15,423 (11,364)
(2,936) 8,992 (10,331)
18,451
(15,787)
(25,071)
(37,959)
5,745 17,719 (502)
(5,177) 23,982 (1,086)
7,265 402 (38)
(2,715) 2,846 271
22,962
17,719
7,629
402
24
Cash flows used in investing activities Financing activities Proceeds from the issue of share capital Finance costs Net loans advanced to subsidiaries Purchase of own shares by Employee Share Ownership Trust Capital element of finance lease repayments Proceeds from other non-current borrowings Dividends paid
26 26
Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Net foreign exchange differences Cash and cash equivalents at 31 December
Annual Report and Accounts 2015
26
57
Financial statements
(3,494)
Cash generated from operations Cash outflow from acquisition costs Income tax (payments)/receipts
Governance
Profit before tax Adjustments to reconcile profit before tax to net cash flows Depreciation and amortisation Acquisition costs charged Profit on sale of property, plant and equipment Loss on sale of business Adjustment to provision for contingent consideration Net finance expense Share of post tax results of joint ventures Share based compensation Increase in trade and other receivables (Increase)/decrease in inventories Increase/(decrease) in trade and other payables Defined benefit pension cash contributions less service cost
Strategic report
Group Company ––––––––––––––––––––––––––––––––––––––– ––––––––––––––––––––––––––––––––––––––– 31 December 2015 31 December 2014 31 December 2015 31 December 2014 Notes £000 £000 £000 £000
James Fisher and Sons plc
Consolidated statement of changes in equity for the year ended 31 December 2015
Capital –––––––––––––––––––
At 1 January 2014 Total comprehensive income for the year Contributions by and distributions to owners: Ordinary dividends paid Share based compensation Tax effect of share based compensation Acquired with subsidiaries Purchase of shares by ESOT Sale of shares by ESOT Transfer on disposal of shares At 31 December 2014 Total comprehensive income for the year Contributions by and distributions to owners: Ordinary dividends paid Share based compensation Tax effect of share based compensation Purchase of shares by ESOT Sale of shares by ESOT Arising on the issue of shares Transfer on disposal of shares At 31 December 2015
Attributable to equity holders of parent –––––––––––––––––––––––––––––––––––––––––––––– Total Retained Other Treasury shareholders earnings reserves shares equity £000 £000 £000 £000
Noncontrolling interests £000
Total equity £000
182,904 31,760
903 456
183,807 32,216
(3,366) 430
(10,331) 1,226 131 (3,366) 430
77 -
(10,331) 1,226 131 77 (3,366) 430
-
(2,936) 2,340
(11,910) -
77 -
(11,833) -
174,663 33,737
(7,684) (3,670)
(1,988) -
202,754 30,067
1,436 952
204,190 31,019
287
(11,364) 214 70 -
-
(4,220) 183 -
(11,364) 214 70 (4,220) 183 303
-
(11,364) 214 70 (4,220) 183 303
16 -
287 -
(11,080) (4,412)
-
(4,037) 4,412
(14,814) -
-
(14,814) -
12,541
25,525
192,908
(11,354)
(1,613)
218,007
2,388
220,395
Capital ––––––––––––––––––– Share Share capital premium £000 £000
Retained earnings £000
Hedging reserves £000
Treasury shares £000
Total equity £000
12,525 -
25,238 -
102,316 31,616 (1,669)
(919) (2,025) (99) -
(1,392) -
137,768 31,616 (2,025) (99) (1,669)
-
-
(10,331) 1,226 130 -
-
(3,366) 430
(10,331) 1,226 130 (3,366) 430
-
-
(8,975) (2,340)
-
(2,936) 2,340
(11,911) -
12,525 -
25,238 -
120,948 39,565 (1,768)
(3,043) 676 77 -
(1,988) -
153,680 39,565 676 77 (1,768)
16 -
287 -
(11,364) 214 71 -
-
(4,220) 183
(11,364) 214 71 303 (4,220) 183
16 -
287 -
(11,079) (4,412)
-
(4,037) 4,412
(14,813) -
12,541
25,525
143,254
(2,290)
(1,613)
177,417
Share capital £000
Share premium £000
12,525 -
25,238 -
147,716 38,261
(1,183) (6,501)
(1,392) -
-
-
(10,331) 1,226 131 -
-
-
-
(8,974) (2,340)
12,525 -
25,238 -
16
Company statement of changes in equity for the year ended 31 December 2015
At 1 January 2014 Profit for the period Effective portion of changes in cash flow hedges Net changes in fair value of cash flow hedges transferred to profit or loss Remeasurements of defined benefit plan liabilities Contributions by and distributions to owners: Ordinary dividends paid Share based compensation Tax effect of share based compensation Purchase of shares by ESOT Sale of shares by ESOT Transactions with shareholders Transfer on disposal of shares At 31 December 2014 Profit for the period Effective portion of changes in cash flow hedges Net changes in fair value of cash flow hedges transferred to profit or loss Remeasurements of defined benefit plan liabilities Contributions by and distributions to owners: Ordinary dividends paid Share based compensation Tax effect of share based compensation Arising on the issue of shares Purchase of shares by ESOT Sale of shares by ESOT Transactions with shareholders Transfer on disposal of shares At 31 December 2015
58
Annual Report and Accounts 2015
James Fisher and Sons plc
Notes to the financial statements
1
General information
The Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), adopted by the European Union (adopted IFRS). The financial statements are prepared on a going concern basis and on an historical cost basis, modified to include revaluation to fair value of certain financial instruments. As permitted by section 408 of the Companies Act 2006, a separate income statement and related notes for the holding company have not been presented in these financial statements. The profit after taxation in the Company was £39.6m (2014: £31.6m). The Group and Company financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated.
Strategic report
James Fisher and Sons plc is a public limited company registered and domiciled in England and Wales and listed on the London Stock Exchange. The consolidated financial statements comprise the financial statements of the Company, its subsidiary undertakings and its interest in associates and jointly controlled entities (together referred to as the Group), for the year ended 31 December 2015. The Company’s shares are listed on the London Stock Exchange. The Company and consolidated financial statements were approved for publication by the Directors on 1 March 2016.
The consolidated financial statements and those of the Company have been prepared in accordance with IFRS adopted by the EU as at 31 December 2015 and are applied in accordance with the provisions of the Companies Act 2006.
2
Alternative performance measures
The Group uses a number of alternative (non-Generally Accepted Accounting Practice (“non-GAAP”)) financial measures which are not defined within IFRS. The Directors use these measures in order to assess the underlying operational performance of the Group and, as such, these measures are important and should be considered alongside the IFRS measures. The adjustments are separately disclosed and are usually items that are significant in size or non-recurring in nature. The following non-GAAP measures are referred to in this Annual Report and Accounts.
Underlying operating profit and underlying profit before taxation Underlying operating profit is defined as operating profit before amortisation or impairment of acquired intangible assets, acquisition expenses, adjustments to deferred consideration (together, ‘acquisition related income and expense’), the costs of a material restructuring, asset impairment or rationalisation of operations and the profit or loss relating to the sale of businesses or property. The Directors believe that the underlying operating profit is an important measure of the operational performance of the Group. Underlying profit before taxation is defined as underlying operating profit less net finance expense.
2.2
Underlying earnings per share Underlying earnings per share (‘EPS’) is calculated as the total of underlying profit before tax, less income tax, but excluding the tax impact on separately disclosed items included in the calculation of underlying profit less profit attributable to minority interests, divided by the weighted average number of ordinary shares in issue during the year. The Directors believe that underlying EPS provides an important measure of the underlying earnings capability of the Group. Underlying earnings per share is set out in note 10.
2.3
Capital employed and return on capital employed (ROCE) Capital employed is defined as net assets less cash and short-term deposits and after adding back borrowings. Average capital employed is adjusted for the timing of businesses acquired and after adding back cumulative amortisation of customer relationships. Segmental ROCE is defined as the underlying operating profit divided by average capital employed. The key performance indicator, Group post tax ROCE is defined as underlying operating profit, less notional tax, calculated by multiplying the effective tax rate by the underlying operating profit, divided by average capital employed. 2015 £000
2014 £000
Operating profit Separately disclosed items before taxation
51,516 (5,926)
53,918 (2,381)
Underlying operating profit Net finance expense
45,590 (4,343)
51,537 (4,684)
Underlying profit before tax
41,247
46,853
Annual Report and Accounts 2015
59
Financial statements
2.1
Governance
In the 2014 cashflow amortisation of acquired intangibles was disclosed with acquisition costs, in 2015 this has been re-classified into depreciation and amortisation. The depreciation and loss/(profit) on sale of plant and equipment has been corrected to reclassify the release of an impairment provision. As a result of these changes there is no impact on the cashflow from operating activities.
James Fisher and Sons plc
Notes to the financial statements continued
2
Alternative performance measures continued
Return on capital employed for the Group is calculated as follows: 2015 £000
2014 £000
Capital employed: Total assets Total liabilities
507,100 (286,705)
433,146 (228,956)
Net assets less cash and short-term deposits plus borrowings
220,395 (22,962) 116,645
204,190 (17,719) 79,899
Capital employed
314,078
266,370
45,590 (6,519)
51,537 (9,895)
Underlying operating profit Notional tax at the effective tax rate
Average capital employed Post tax return on average capital employed
3
39,071
41,642
290,224 13.5%
252,310 16.5%
Segmental information
For management reporting purposes, the Group has four operating segments reviewed by the Board: Marine Support, Offshore Oil, Specialist Technical and Tankships. These operating segments form the basis of the primary segmental disclosures below. Their principal activities are set out in the Strategic report on pages 16 to 19. The Board assess the performance of the segments based on operating profit as set out in note 2. The Board believes that such information is the most relevant in evaluating the results of certain segments relative to other entities which operate within these industries. Inter segmental sales are made using prices determined on an arms length basis. Sector assets exclude cash and short-term deposits, deferred tax and corporate assets that cannot reasonably be allocated to operating segments. Sector liabilities exclude borrowings, retirement benefit obligations, deferred tax and corporate liabilities that cannot reasonably be allocated to operating liabilities. Year ended 31 December 2015 Marine Support £000
Offshore Oil £000
Specialist Technical £000
Tankships £000
Corporate £000
Total £000
Segmental revenue Inter segment sales
194,389 (1,411)
63,742 (786)
130,293 (850)
52,627 (74)
-
441,051 (3,121)
Revenue
192,978
62,956
129,443
52,553
-
437,930
Underlying operating profit Acquisition costs Adjustment to provision for contingent consideration Amortisation of acquired intangibles
19,352 (904) 4,998 (397)
7,399 (45)
13,907 (451) 3,494 (769)
7,164 -
(2,232) -
45,590 (1,355) 8,492 (1,211)
Operating profit Loss on sale of business Net finance expense
23,049 (393)
7,354 (566)
16,181 -
7,164 -
(2,232) -
51,516 (959) (4,343)
Profit before tax Income tax
46,214 (5,507)
Profit for the year
40,707
Assets & liabilities Segment assets Investment in joint ventures
202,612 4,023
126,405 -
100,480 2,227
32,898 -
38,455 -
500,850 6,250
Total assets Segment liabilities
206,635 (66,346)
126,405 (8,300)
102,707 (41,881)
32,898 (6,441)
38,455 (163,737)
507,100 (286,705)
140,289
118,105
60,826
26,457
(125,282)
220,395
7,221 6,708
7,898 10,812
2,324 3,174
1,629 3,294
525 454
19,597 24,442
Other segment information Capital expenditure Depreciation and amortisation
60
Annual Report and Accounts 2015
Year ended 31 December 2014 Offshore Oil £000
Specialist Technical £000
Tankships £000
Corporate £000
Total £000
Segmental revenue Inter segment sales
165,566 (1,416)
106,690 (1,810)
123,075 (1,614)
54,355 (47)
-
449,686 (4,887)
Revenue
164,150
104,880
121,461
54,308
-
444,799
Underlying operating profit Acquisition costs Adjustment to provision for contingent consideration Amortisation of acquired intangibles
14,150 (405) 698 (227)
22,426 (122)
13,338 (295) 3,402 (670)
4,711 -
(3,088) -
51,537 (700) 4,100 (1,019)
Operating profit Net finance expense
14,216
22,304
15,775
4,711
(3,088)
53,918 (4,684) 49,234 (8,751)
Profit for the year
40,483 123,155 7,138
138,131 -
98,044 2,009
33,372 -
31,297 -
423,999 9,147
Total assets Segment liabilities
130,293 (32,648)
138,131 (15,427)
100,053 (51,098)
33,372 (9,754)
31,297 (120,029)
433,146 (228,956)
97,645
122,704
48,955
23,618
(88,732)
204,190
9,921 4,855
16,595 9,905
3,136 3,022
1,865 3,975
667 312
32,184 22,069
Other segment information Capital expenditure Depreciation and amortisation
Geographic information Geographical revenue is determined by the location in which the product or service is provided. Where customers receive the product or service in one geographical location for use or shipment to another it is not practicable for the Group to identify this and the revenue is attributed to the location of the initial shipment. The geographical allocation of segmental assets and liabilities is determined by the location of the attributable business unit. United Kingdom
Rest of Europe
Middle East, Africa & Americas
Asia Pacific
Total
2015 £000
2014 £000
2015 £000
2014 £000
2015 £000
2014 £000
2015 £000
2014 £000
2015 £000
2014 £000
Revenue Segmental revenue Inter segment sales
174,230 (2,429)
202,313 (3,773)
59,984 (226)
64,730 (486)
118,664 (18)
107,522 (627)
88,173 (448)
75,120 -
441,051 (3,121)
449,685 (4,886)
Group revenue
171,801
198,540
59,758
64,244
118,646
106,895
87,725
75,120
437,930
444,799
Segment assets Investment in joint ventures Segment liabilities
316,234 130 (238,756)
317,719 114 (199,825)
46,770 155 (5,232)
53,331 212 (7,192)
99,464 338 (30,847)
21,821 4,066 (12,576)
38,383 5,627 (11,869)
31,128 4,755 (9,363)
500,850 6,250 (286,705)
423,999 9,147 (228,956)
77,608
118,008
41,693
46,351
68,955
13,311
32,141
26,520
220,395
204,190
Annual Report and Accounts 2015
61
Financial statements
Assets & liabilities Segment assets Investment in joint ventures
Governance
Profit before tax Income tax
Strategic report
Marine Support £000
James Fisher and Sons plc
Notes to the financial statements continued
4
Revenue and operating charges
Revenue comprises goods and services of £312.4m (2014: £300.9m), rental income of £43.0m (2014: £51.1m) and construction contract income of £82.5m (2014: £92.8m). Operating charges reflected within operating profit include: 2015 £000
2014 £000
Research and development costs
1,456
1,364
Net foreign currency losses/(gains)
1,383
(234)
99,205
119,621
4,048 7,987 188
3,928 8,844 418
12,223 14,589
13,190 13,527
26,812
26,717
2015 £000
2014 £000
Audit of the financial statements of the parent Local statutory audits of subsidiaries
160 445
129 406
Taxation services Corporate finance services
605 85 150
535 96 20
Total fees payable to Group auditor
840
651
Cost of inventories recognised as an expense Operating lease rentals: property ships other Hire of vessels
Auditor’s remuneration comprises the following:
5
Separately disclosed items
In order for a better understanding of the underlying performance of the Group certain items are disclosed separately as set out in note 2. Separately disclosed items are as follows: 2015 £000
2014 £000
Costs incurred in acquiring businesses Amortisation of acquired intangibles Adjustment to provisions for contingent consideration
(1,355) (1,210) 8,491
(700) (1,019) 4,100
Acquisition related income and (expense) Loss on disposal of business
5,926 (959)
2,381 -
Separately disclosed items before taxation Tax on separately disclosed items
4,967 396
2,381 243
5,363
2,624
The adjustment to the provision for contingent consideration comprises £5.0m in respect of Subtech Group Holdings (Pty) Limited which was acquired for an initial consideration of £3.3m on 2 March 2015. An element of consideration was dependent on a profit target for the year ended 31 December 2015 which was not achieved. In addition contingent consideration liabilities have been adjusted based on most recent business short-term and medium-term forecasts resulting in a further credit of £3.5m.
6
(a)
Group employee costs
Staff costs including Directors’ remuneration were as follows:
Wages and salaries Social security costs Pension costs Share based compensation
62
Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000 97,037 9,351 3,714 214
95,784 9,707 4,152 1,226
110,316
110,869
Annual Report and Accounts 2015
The monthly average number of persons including Executive Directors employed by the Group was:
Technical and administrative Seafarers
2,487 260
2,161 333
2,747
2,494
Strategic report
Group ––––––––––––––––––––––––––––– 2015 2014 Number Number
The Directors’ remuneration and their interest in shares of the Company are given in the Directors’ Remuneration report on pages 33 to 45. The amount charged against operating profit in the year in respect of Director short-term remuneration was £0.9m (2014: £1.2m) in respect of emoluments and £0.1m (2014: £0.1m) in respect of pension contributions to defined contribution schemes. The charge for share based payments to Directors was £0.1m (2014: £0.5m) and aggregate gains under the exercise of options was £nil (2014: £0.1m). 2014 £000
2,023 113
1,931 611
2,136
2,542
2015 £000
2014 £000
239
197
(3,577) (3) (23) (756) (223)
(3,396) (3) (20) (976) (486)
(4,582)
(4,881)
(4,343)
(4,684)
2015 £000
2014 £000
Current tax: UK corporation tax Overseas tax
(3,804) (4,209)
(7,636) (3,324)
Adjustment in respect of prior years: UK corporation tax Overseas tax
753 1,217
897 50
Total current tax
(6,043)
(10,013)
Deferred tax: Origination and reversal of temporary differences: UK corporation tax Overseas tax
(666) 1,202
(198) 1,460
Total taxation on profit for the year
(5,507)
(8,751)
Compensation of key management to the Group
Short-term employee benefits Share based payments
Governance
2015 £000
(b)
Key management personnel include the Board of Directors of the Company and other senior members of the management team.
7
Net finance expense
Net finance expense
8
Taxation
(a)
The tax charge is based on profit for the year and comprises:
The total tax charge in the income statement includes a further £0.2m (2014: £0.2m) which is stated within the share of post tax results of joint ventures.
Annual Report and Accounts 2015
63
Financial statements
Finance income: Interest receivable on short-term deposits Finance expense: Bank loans and overdrafts Preference dividend Finance charges payable under finance leases Net interest on pension obligations Unwind of discount on contingent consideration
James Fisher and Sons plc
Notes to the financial statements continued
8
(b)
Taxation continued
Income tax on comprehensive income
Current tax: Current tax on foreign exchange losses on internal loans Current tax on contributions to defined benefit pension schemes Current tax relating to share based payments Deferred tax: Deferred tax on actuarial loss on defined benefit pension schemes Deferred tax relating to derivatives Deferred tax relating to share based payments
(c)
Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000 122 760 372
21 1,134 308
874 (220) (302)
(818) 429 (178)
1,606
896
Reconciliation of effective tax rate
The Group falls under the UK tonnage tax regime on its ship owning and operating activities and a charge is based on the net tonnage of vessels operated. Profits for these activities are not subject to corporation tax. The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the rate applicable under UK corporation tax rules as follows:
Profit before tax Tax arising from interests in joint ventures
Tax on profit at UK statutory tax rate of 20.25% (2014: 21.5%) Tonnage tax relief on vessel activities Expenses not deductible for tax purposes (Over)/under provision in previous years: Current tax Deferred tax Higher tax rates on overseas income Research and development relief Non taxable income – Impact of change of rate Other
2015 £000
2014 £000
46,214 218
49,234 228
46,432
49,462
9,403 (884) 554
10,634 (583) 625
(1,970) (246) 497 (200) (1,722) (19) 312
(947) 523 60 (151) (1,228) 46
5,725
8,979
The effective rate on profit before income tax from continuing operations is 11.9% (2014: 17.8%). The effective income tax rate on the underlying profit before tax was 14.3% (2014: 19.2%). At 31 December 2015 the Group had unrecognised tax losses of £2.6m (2014: £0.8m). A deferred tax asset has not been recognised in respect of these losses due to the uncertainty relating to their future recovery. Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective from 1 April 2020) were substantively enacted on 26 October 2015. This will reduce the Group’s future current tax charge accordingly. The impact of re-measuring the Group’s UK tax assets and liabilities at these rates has not been recognised in these financial statements and the impact is not considered to be material.
64
Annual Report and Accounts 2015
9
Deferred tax
Deferred tax at 31 December relates to the following:
Deferred tax assets: Retirement benefits Share based payments Derivative financial instruments Losses carried forward Temporary differences
Net deferred income tax asset
4,609 883 231 844 -
3,611 1,346 452 -
2,934 883 179 281
2,749 1,346 339 773
6,567
5,409
4,277
5,207
(3,339) (3,308) 3,116
(3,127) (2,812) 2,679
-
-
(3,531)
(3,260)
-
-
3,036
2,149
4,277
5,207
Governance
Deferred tax liabilities: Property, plant and equipment Intangible assets Other items
Company ––––––––––––––––––––––––––––– 2015 2014 £000 £000
Strategic report
Group –––––––––––––––––––––––––––– 2015 2014 £000 £000
Deferred tax assets and liabilities included in the consolidated balance sheet have been analysed according to the net exposures in each tax jurisdiction. The gross movement on the deferred income tax account is as follows: Company ––––––––––––––––––––––––––––– 2015 2014 £000 £000
Balance at 1 January Charged to comprehensive income Charged to equity Credited/(charged) to income statement Exchange adjustments Acquisition of subsidiaries
2,149 654 (302) 536 93 (94)
1,638 (389) (178) 1,262 166 (350)
5,207 (86) (302) (542) -
5,266 150 (178) (31) -
Balance at 31 December
3,036
2,149
4,277
5,207
At 31 December 2015 the Group has no recognised deferred income tax liability (2014: £nil) in respect of taxes that would be payable on the unremitted earnings of certain of the Company’s subsidiaries. No deferred income tax liability has been recognised in respect of this temporary timing difference due to the foreign profits exemption, the availability of double taxation relief and the ability to control the remittance of earnings. Deferred tax credited to the income statement in the year ending 31 December 2015 relates to the following: The gross movement on the deferred income tax account is as follows: Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000 Deferred tax assets Deferred tax liabilities: Property, plant and equipment Intangible assets Other items
(807)
(66)
80 183 8
324 196 (1,716)
Deferred income tax credit
(536)
(1,262)
10 Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, after excluding 148,275 (2014: 153,192) ordinary shares held by the James Fisher and Sons plc Employee Share Ownership Trust (ESOT), held as treasury shares. Diluted earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. At 31 December 2015 332,893 options (2014: 182,124) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive. The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.
Annual Report and Accounts 2015
65
Financial statements
Group –––––––––––––––––––––––––––– 2015 2014 £000 £000
James Fisher and Sons plc
Notes to the financial statements continued
10 Earnings per share continued Weighted average number of shares
2015 Number of shares
2014 Number of shares
Basic weighted average number of shares Potential exercise of share based payment schemes
50,040,647 344,743
49,986,659 606,887
Diluted weighted average number of shares
50,385,390
50,593,546
Underlying earnings per share To provide a better understanding of the underlying performance of the Group, underlying earnings per share on continuing activities is reported as an alternative performance measure (note 2). Underlying profit is as follows: 2015 £000
2014 £000
Profit attributable to owners of the Company Adjustments: Separately disclosed items Tax on separately disclosed items
39,885
40,071
(4,967) (396)
(2,381) (243)
Underlying profit attributable to owners of the Company
34,522
37,447
Earnings per share
pence
pence
79.7 79.2 69.0 68.5
80.2 79.2 74.9 74.0
Basic earnings per share Diluted earnings per share Underlying basic earnings per share Underlying diluted earnings per share
11 Dividends paid and proposed
Declared and paid during the year Equity dividends on ordinary shares: Final dividend for 2014: Interim dividend for 2015: Less dividends on own shares held by ESOP
2015 pence per share
2014 pence per share
2015 £000
2014 £000
14.90 7.80
13.54 7.10
7,471 3,913 (20)
6,783 3,557 (9)
11,364
10,331
A final dividend in respect of the year ended 31 December 2015 of 16.0p per share (2014: 14.9p) is proposed.
12 Goodwill Marine Support £000
Offshore Oil £000
Specialist Technical £000
Tankships £000
Total £000
At 1 January 2014 Acquisitions Exchange differences
25,464 7,145 (61)
42,898 68 (1,705)
25,554 5,529 (774)
10,260 -
104,176 12,742 (2,540)
At 31 December 2014 Acquisitors Exchange differences
32,548 25,594 (2,634)
41,261 (1,183)
30,309 4,592 (332)
10,260 -
114,378 30,186 (4,149)
At 31 December 2015
55,508
40,078
34,569
10,260
140,415
Group
Impairment of goodwill Goodwill acquired through business combinations has been allocated for impairment testing purposes to cash generating units (CGU’s). The recoverable amount of these units has been assessed based on value in use calculations using cash projections based on budgets approved by the Board for the next financial year together with projections derived from those budgets for the following four years. A terminal value of cash flows beyond that date has been calculated at a growth rate in line with management’s long-term expectations for the relevant market. The key assumptions used in the value in use calculations include gross margin, discount rate, inflation of overheads and payroll and growth rates. Growth estimates are based on the levels achieved in the current and historic periods adjusted for management expectations of the impact of management actions and the future development of the relevant market. Short-term growth rates for turnover vary between 1% and 3% which allows for significant growth in project based activities. These growth rates are considered to be conservative and vary dependant on the market conditions in which the CGU operates. Direct costs are expected to increase in line with turnover. Administrative costs are anticipated to increase at 2%.
66
Annual Report and Accounts 2015
Payroll inflation reflects the fact that the Group provides specialist services in a competitive market and are influenced by the need to retain skilled staff. As a result the initial growth rates for payroll costs range between 1% in mature businesses to up to 3% for specific posts in businesses located in areas where skilled staff are in short supply.
Based on the value in use calculations set out above no impairment of the goodwill of the cash generating units was identified.
Strategic report
Discount rates applied to cash projections reflect management’s estimate of the return required from the business to reflect the cost of funds plus an appropriate risk premium. This has been determined with reference to the CGU’s weighted average cost of capital (WACC) adjusted for risks specific to each CGU’s cash flows. The range of pre-tax discount rates used was 6.1% to 7.1% (2014: 7.2% to 8.6%). An effective tax rate of 18.5% has been assumed as an estimated long-term rate.
The key assumptions applied to each CGU were as follows: Offshore Oil
Specialist Technical
Tankships
3%-5% 2%-7% 3%-4% 2%
0.80% 2% 0% 0%
3% 2%-7% 2%-3% 2%
1% 1%-2% 0% 1%-2%
Sensitivity to impairment Sensitivity analysis has been performed to determine the impact of a change in a key assumption (e.g. such as an increase in discount rate by 1%) and no impairment issues were identified.
Governance
Short-term gross profit growth Long-term gross profit growth Short-term direct costs Long-term direct costs
Marine Support
13 Other intangible assets Intellectual property £000
Customer relationships £000
Total £000
Cost At 1 January 2014 Additions Exchange differences
6,890 1,808 -
639 3,042 (18)
4,708 992 (79)
12,237 5,842 (97)
At 31 December 2014 Additions Reclassification Acquisition Disposals Exchange differences
8,698 2,678 288 -
3,663 26 (288) 3,000 (1,428) 34
5,621 1,349 (189)
17,982 2,704 4,349 (1,428) (155)
At 31 December 2015
Group
11,664
5,007
6,781
23,452
Amortisation At 1 January 2014 Charge for the period Exchange differences
926 1,069 -
423 468 (13)
1,406 1,019 (68)
2,755 2,556 (81)
At 31 December 2014 Charge for the period Reclassification Disposals Exchange differences
1,995 1,037 (267) (67)
878 154 267 (143) (10)
2,357 1,210 -
5,230 2,401 (143) (77)
At 31 December 2015
2,698
1,146
3,567
7,411
Net book value at 31 December 2015
8,966
3,861
3,214
16,041
Net book value at 1 January 2015
6,703
2,785
3,264
12,752
Net book value at 1 January 2014
5,964
216
3,302
9,482
Customer relationships relate to items acquired through business combinations which are amortised over their useful economic life. Development costs relate to new products developed by the Group and intellectual property represents amounts purchased or acquired relating to technology in the Group’s activities. Based on an assessment of value in use there are no indications that any impairment of these assets has arisen during the period. Company The Company has no intangible assets.
Annual Report and Accounts 2015
67
Financial statements
Development costs £000
James Fisher and Sons plc
Notes to the financial statements continued
14 Property, plant and equipment Vessels £000
Assets under construction £000
Freehold & leasehold property £000
Plant & equipment £000
Total £000
At 1 January 2014 Additions Reclassifications Acquisitions Disposals Exchange differences
71,369 6,104 6 (10,435) 28
2,025 9,895 (6,896) (7) (260)
22,575 3,945 659 (160) (73)
109,978 12,240 6,237 2,015 (4,535) (3,788)
205,947 32,184 2,021 (15,137) (4,093)
At 31 December 2014 Additions Reclassifications Acquisitions Disposals Disposal of subsidiary undertaking Exchange differences
67,072 1,873 3,882 (29) (44)
4,757 6,940 (7,407) 294 (247) (263)
26,946 1,973 350 (276) (176) (150)
122,147 8,811 7,407 12,170 (4,189) (3,155)
220,922 19,597 16,696 (4,741) (176) (3,612)
At 31 December 2015
72,754
4,074
28,667
143,191
248,686
At 1 January 2014 Provided during the year Reclassifications Utilisation of impairment provision Disposals Exchange differences
47,270 4,491 (2,145) (6,066) 15
-
3,939 1,135 5 (159) (39)
46,536 13,887 (5) (2,053) (2,518)
97,745 19,513 (2,145) (8,278) (2,542)
At 31 December 2014 Provided during the year Utilisation of impairment provision Disposals Disposal of subsidiary undertaking Exchange differences
43,565 4,177 (482) (26) (49)
-
4,881 1,147 (148) (155) (38)
55,847 16,717 (2,311) (2,033)
104,293 22,041 (482) (2,485) (155) (2,120)
At 31 December 2015
47,185
-
5,687
68,220
121,092
Net book value at 31 December 2015
25,569
4,074
22,980
74,971
127,594
Net book value at 1 January 2015
23,507
4,757
22,065
66,300
116,629
Net book value at 1 January 2014
24,099
2,025
18,636
63,442
108,202
Group Cost:
Group Depreciation and impairment:
Property, plant and equipment held under leasing arrangements The carrying value of plant and equipment held under finance leases and hire purchase contracts at 31 December 2015 was £0.2m (2014: £0.3m). Included in vessels are assets with a cost of £6.4m (2014: £6.2m) and accumulated depreciation of £5.6m (2014: £5.0m) which relate to assets held under operating leases. Included in property, plant and equipment is aggregate interest capitalised of £1.0m (2014: £1.1m).
68
Annual Report and Accounts 2015
At 1 January 2014 Additions Inter group transfers Disposals
9,452 129 (418)
1,839 232 -
1,797 668 (250)
13,088 797 232 (668)
At 31 December 2014 Additions Disposals
9,163 337 -
2,071 -
2,215 526 (139)
13,449 863 (139)
At 31 December 2015
9,500
2,071
2,602
14,173
Company Depreciation: At 1 January 2014 Provided during the year Inter-group transfers Disposals
5,203 431 (418)
801 89 164 -
885 224 (250)
6,889 744 164 (668)
At 31 December 2014 Provided during the year Disposals
5,216 396 -
1,054 88 -
859 366 (139)
7,129 850 (139)
At 31 December 2015
5,612
1,142
1,086
7,840
Net book value at 31 December 2015
3,888
929
1,516
6,333
Net book value at 1 January 2015
3,947
1,017
1,356
6,320
Net book value at 1 January 2014
4,249
1,038
912
6,199
Company Cost:
Included in property, plant and equipment is aggregate interest capitalised of £0.1m (2014: £0.1m).
15 Investment in subsidiaries, associates and joint arrangements The Group has a 50% equity interest in Eurotestconsult UK Limited, a company which provides monitoring, instrumentation and testing services. The Group has a 50% equity interest in the ordinary shares of Fendercare Benelux BV and Fendercare Omega Limited and a 49% equity interest in Fendercare Malaysia Sdn Bhd. These joint ventures, which are referred to as the FCM businesses, are marine services companies operating ship-to-ship transfers principally in Northern Europe and Asia. The Group has a 50% equity interest in the ordinary shares of First Response Marine Pte Ltd (FRM). FRM provides submarine rescue services to the Singapore government under a 20 year service contract which commenced in March 2009. On the 1 November 2015, the Group acquired the remaining 55% interest of a number of companies, alternatively known as Fendercare Nigeria. For further details of the acquisition, see note 24. Details of the Group’s joint ventures and associated undertakings are set out on pages 97 and 98. The Group’s share of the assets, liabilities and trading results of these joint venture entities at 31 December 2015 which are accounted for under the equity accounting method, are as follows: 2015 £000
2014 £000
Current assets Non-current assets Current liabilities Non-current liabilities Loans to associate
24,710 18,977 (15,543) (23,627) 1,733
23,548 23,347 (19,373) (20,129) 1,754
6,250
9,147
Revenue Cost of sales Administrative expenses
13,425 (11,496) (920)
16,951 (13,794) (2,039)
1,009 (704)
1,118 (704)
Profit before income tax Taxation
305 (218)
414 (228)
Profit after tax Non-controlling interests
87 13
186 (33)
100
153
Profit from operations Net finance expense
Net profit attributable to equity holders
Annual Report and Accounts 2015
69
Financial statements
Total £000
Governance
Plant & equipment £000
Strategic report
Vessels £000
Freehold & leasehold property £000
James Fisher and Sons plc
Notes to the financial statements continued
15 Investment in subsidiaries, associates and joint arrangements continued
Segmental analysis of profit after tax: Marine Support Specialist Technical
2015 £000
2014 £000
(453) 540
(394) 580
87
186
Movement on investment in joint ventures: At 1 January Acquisitions Stepped acquisition of Fendercare Nigeria Profit for the period Dividends received Share of fair value gains/(losses) on cash flow hedges Non-controlling interests Exchange adjustments
9,147 676 (3,359) 100 (1,089) 354 421
9,467 30 153 (641) (133) 33 238
At 31 December
6,250
9,147
2015 £000
2014 £000
At 1 January Additions
1,478
-
1,378 100
At 31 December
1,478
1,478
1,368
1,368
There are no capital commitments or contingent liabilities in respect of the Group’s interests in joint ventures.
16 Financial assets Available for sale Group
Company At 1 January and 31 December
Available for sale financial assets include a 17.2% (2014: 17.2%) equity interest in ordinary shares in SEML De Co-operation Transmanche, an unlisted company incorporated in France, whose main activity is a port and ferry operator. In addition, the Group has a 50% interest in DivexDomeyer GmbH, a company incorporated in Germany which provides in-service support and aftermarket services to the German navy. The Group does not actively participate in the operation and control of that business. The investments listed above are in unquoted entities whereby the fair value of the shareholding cannot be readily ascertained or measured reliably. The investments are therefore held at initial cost and are subject to an annual impairment review. No impairment was required at 31 December 2015 (2014: £nil).
Company
Subsidiary undertakings ––––––––––––––––––––––– Shares Loans £000 £000
Cost At 1 January 2014 Additions/increases Recapitalisations Repayments
156,926 387 2,351 -
91,785 50,171 (2,351) (20,824)
248,711 50,558 (20,824)
At 31 December 2014 Additions/increases Repayments
159,664 259 -
118,781 101,358 (77,023)
278,445 101,617 (77,023)
At 31 December 2015
Investments
Total £000
159,923
143,116
303,039
Amount provided At 1 January 2014 Released
445 -
348 (348)
793 (348)
At 31 December 2014
445
-
445
At 31 December 2015
445
-
445
Net book value at 31 December 2015
159,478
143,116
302,594
Net book value at 31 December 2014
159,219
118,781
278,000
A list of subsidiary undertakings is included on pages 97 and 98.
70
Annual Report and Accounts 2015
17 Inventories
Work in progress Raw materials and consumables Finished goods
9,088 6,105 32,243
7,329 8,059 25,268
47,436
40,656
Strategic report
Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000
Inventories are stated net of impairment provisions of £3.1m (2014: £2.6m). During the year £0.5m (2014: £0.8m) was charged to the income statement to write down inventories to net realisable value.
18 Trade and other receivables
Trade receivables Amounts owed by group undertakings Amounts owed by joint venture undertakings Other non-trade receivables Prepayments and accrued income
Company ––––––––––––––––––––––––––––– 2015 2014 £000 £000
68,924 6,069 7,880 34,771
1,883 5,739 630
14 1,476 2,895 288
141,734
117,644
8,252
4,673
Of the above other non-trade receivables of £nil (2014: £0.3m) are expected to be recovered in more than one year. At 31 December 2015, the aggregated amount of costs incurred and recognised profits (less recognised losses) to date under open construction contracts amounted to £24.6m (2014: £23.5m). Retentions relating to construction contracts included in trade receivables are £nil (2014: £0.1m). Included within the trade and other receivable balances is £26.9m (2014: £23.8m) in relation to construction contracts in progress. During the year the principal customer of one of the Group’s overseas subsidiaries terminated its contract for mooring and diving services, whilst discussions are on-going regarding settlement, the Group expects to recover all costs to be incurred relating to the termination.
19 Share capital Group and Company Authorised 66,320,000 ordinary shares of 25p each 100,000 3.5% cumulative preference shares of £1 each
Allotted, called up and fully paid
In thousands of shares
25p Ordinary shares ––––––––––––––––––––––––––––– 2015 2014
£1 Cumulative preference shares ––––––––––––––––––––––––––– 2015 2014
In issue at 1 January Exercise of share options
50,099 65
50,099 -
100 -
100 -
In issue 31 December
50,164
50,099
100
100
2015 £000
2014 £000
2015 £000
2014 £000
12,541
12,525
100
100
Issued share capital
The preference shareholders are entitled to receive 3.5% per annum on the par value of the shares and the ordinary shareholders receive dividends as declared from time to time by the Directors. Shares all carry equal voting rights of one vote per share held. Neither type of share is redeemable. In the event of a winding up order the amount receivable in respect of the cumulative preference shares is limited to their nominal value. The ordinary shareholders are entitled to an unlimited share of the surplus after distribution to the cumulative preference shareholders. Preference shares are treated as a liability in the balance sheet.
Annual Report and Accounts 2015
71
Financial statements
69,099 1,471 18,722 52,442
Governance
Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000
James Fisher and Sons plc
Notes to the financial statements continued
19 Share capital continued Treasury shares
148,275 (2014: 153,192) ordinary shares of 25p
2015 £000
2014 £000
1,613
1,988
The Company has an established Employee Share Ownership Trust, the James Fisher and Sons plc Employee Share Trust, to meet potential obligations under share option and long-term incentive schemes awarded to employees. The market value of these shares at 31 December 2015 was £1.7m (2014: £1.8m). The Trust has not waived its right to receive dividends. In the year ended 31 December 2015, 65,118 ordinary shares with an aggregate nominal value of £16,279 were issued under the Company’s Executive Share Option Scheme at option prices of 327p and 468p per share giving rise to total consideration of £303,111. No ordinary shares of 25p were allotted on the exercise of share options in the year to 31 December 2014. During the year the company purchased 120,000 (2014: 150,000) of its own shares in market by the ESOP at an average cost per share of £10.32 (2014: £13.30) and a cumulative cost of £1,238,397 (2014: £1,994,553).
20 Other reserve movements Translation reserve £000
Hedging reserve £000
Total £000
At 1 January 2014 Other comprehensive income for the period
(940) (4,395)
(243) (2,106)
(1,183) (6,501)
At 31 December 2014 Other comprehensive income for the period
(5,335) (4,717)
(2,349) 1,047
(7,684) (3,670)
(10,052)
(1,302)
(11,354)
At 31 December 2015
21 Trade and other payables Non-current liabilities Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000 Provision for contingent consideration Accruals and deferred income
Company ––––––––––––––––––––––––––––– 2015 2014 £000 £000
8,155 573
9,086 499
-
-
8,728
9,585
-
-
Current liabilities Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000 Trade payables Amounts owed to group undertakings Amounts owed to joint venture undertakings Taxation and social security Other payables Accruals and deferred income
Company ––––––––––––––––––––––––––––– 2015 2014 £000 £000
38,303 289 7,597 15,794 63,398
38,206 1,506 5,371 11,651 49,257
2,194 5,154 366 1,387 3,532
2,936 12,881 239 1,001 3,022
125,381
105,991
12,633
20,079
22 Retirement benefit obligations The Group and Company defined benefit pension scheme obligations relate to the James Fisher and Sons plc Pension Fund for Shore Staff (Shore staff), the Merchant Navy Officers Pension Fund (MNOPF) and the Merchant Navy Ratings Pension Fund (MNRPF). The financial statements incorporate the latest full actuarial valuations of the schemes which have been updated to 31 December 2015 by qualified actuaries using assumptions set out in the table below. The Group’s obligations in respect of its pension schemes at 31 December 2015 were as follows: Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000 Shore staff MNOPF MNRPF
72
Company ––––––––––––––––––––––––––––– 2015 2014 £000 £000
(8,630) (9,730) (8,596)
(10,522) (11,284) -
(8,630) (7,366) (3,094)
(10,522) (8,611) -
(26,956)
(21,806)
(19,090)
(19,133)
Annual Report and Accounts 2015
Shore staff
MNOPF The MNOPF is an industry wide pension scheme which is accounted for as a defined benefit scheme. It is valued every three years and deficits have typically been funded over a ten year period. The most recent triennial actuarial valuation of the scheme was as at 31 March 2015 and no additional deficit funding was requested by the Trustees.
Strategic report
The assets of this scheme are held in a separate trustee administered account and do not include any of the Group’s assets. The scheme was closed to new members in October 2001 and closed to future accrual on 31 December 2010. The most recent actuarial valuation was as at 31 July 2013.
The share of the Group and Company in the net retirement benefit obligation of MNOPF are 3.0% (2014: 3.0%) and 1.4% (2014: 1.4%) respectively. Disclosures relating to this scheme are based on these allocations. The liability recognised represents the discounted value of committed cash flows. Information supplied by the trustees of the MNOPF has been reviewed by the Company’s actuaries. The principal assumption in the review is the discount rate on the scheme’s liabilities which was 4.00% (2014: 3.75%). The disclosures below relate to the Group’s share of the assets and liabilities within the MNOPF.
MNRPF Governance
On 25 February 2015, the High Court confirmed that the Trustees of the MNRPF could implement its proposed funding regime which required former employers, such as James Fisher and Sons plc, to contribute towards the deficit. Based on the most recent actuarial valuation of the MNRPF as at 31 March 2014, the Group and Company have recognised a defined benefit liability based on the discounted value of expected cash contributions, the timing of which is currently subject to agreement with the Trustee. The shares of the Group and the Company in the net retirement benefit obligation of the MNRPF are respectively 2.46% and 0.89%. The principal assumption in the MNRPF valuation is the discount rate on the schemes liabilities which was 4%.
Actuarial assumptions
Inflation (%) Rate of increase of pensions in payment - shore staff (%) Discount rate for scheme liabilities (%) Expected rates of return on assets (%) Post retirement mortality: (years) Shore staff scheme Current pensioner at 65 male Current pensioner at 65 female Future pensioner at 65 male Future pensioner at 65 female
2015
2014
3.15 3.00 - 3.15 4.00 4.00
3.05 2.95 - 3.05 3.75 3.75
21.0 23.0 22.6 24.9
21.1 23.4 22.9 25.3
The post retirement mortality assumptions allow for expected increase in longevity. The “current” disclosures above relate to assumptions based on longevity (in years) following retirement at the balance sheet date, with “future” being that relating to a member who is currently 45 years old.
Sensitivities The key sensitivities on the major schemes may be summarised as follows:
Shore staff scheme Key measure
Change in assumption
Change in deficit
Discount rate Rate of inflation Rate of mortality
Decrease of 0.25% Increase by 0.25% Increase in life expectancy of 1 year
Increase by 2.9% Increase by 1.4% Increase by 3.3%
MNOPF & MNRPF Key measure
Change in assumption
Change in deficit
Discount rate
Decrease of 0.25%
Increase by 0.5%
Annual Report and Accounts 2015
73
Financial statements
The scheme’s assets are stated at their market values on the respective balance sheet dates. The overall expected rates of return on assets reflect the risk free rate of return plus an appropriate risk premium based on the nature of the relevant asset category. The principal assumptions used in updating the latest valuations for each of the schemes were:
James Fisher and Sons plc
Notes to the financial statements continued
22 Retirement benefit obligations continued (a) The assets and liabilities of the schemes at 31 December are: As at 31 December 2015 Group ––––––––––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
Company ––––––––––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
Equities Gilts/corporate bonds Other investments Cash or liquid assets
3,878 45,737 1,200
2,693 25,593 49,669 5,907
3,166 17,197 331
9,737 25,593 112,603 7,438
3,878 45,737 1,200
1,267 12,044 23,374 2,780
1,140 6,191 119
6,285 12,044 75,302 4,099
Fair value of scheme assets Present value of scheme liabilities
50,815
83,862
20,694
155,371
50,815
39,465
7,450
97,730
(59,445)
(93,592)
(29,290)
(182,327)
(59,445)
(46,831)
(10,544)
(116,820)
(8,630)
(9,730)
(8,596)
(26,956)
(8,630)
(7,366)
(3,094)
(19,090)
Net pension liabilities recognised in the balance sheet As at 31 December 2014
Group ––––––––––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
Company ––––––––––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
Equities Gilts/corporate bonds Other investments Cash or liquid assets
7,135 46,649 20
5,140 31,674 39,873 3,467
-
12,275 31,674 86,522 3,487
7,135 46,649 20
2,419 14,905 18,764 1,632
-
9,554 14,905 65,413 1,652
Fair value of scheme assets Present value of scheme liabilities
53,804
80,154
-
133,958
53,804
37,720
-
91,524
(64,326)
(91,438)
-
(155,764)
(64,326)
(46,331)
-
(110,657)
Net pension liabilities recognised in the balance sheet (10,522)
(11,284)
-
(21,806)
(10,522)
(8,611)
-
(19,133)
(b) Expense recognised in the income statement Year ended 31 December 2015 Group ––––––––––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000 Current service cost Expenses Interest cost on benefit obligation Return on scheme assets
Company ––––––––––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
21 105
-
-
21 105
21 105
-
-
21 105
2,325 (1,957)
3,394 (3,006)
-
5,719 (4,963)
2,325 (1,957)
1,710 (1,415)
-
4,035 (3,372)
494
388
-
882
494
295
-
789
The actual return on the Shore staff plan assets is £0.6m. Year ended 31 December 2014 Group ––––––––––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000 Current service cost Expenses Interest cost on benefit obligation Return on scheme assets
Company ––––––––––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
30 143
-
-
30 143
30 143
-
-
30 143
2,685 (2,264)
4,127 (3,572)
-
6,812 (5,836)
2,685 (2,264)
2,094 (1,681)
-
4,779 (3,945)
594
555
-
1,149
594
413
-
1,007
The actual return on the Shore staff plan assets is £5.8m.
74
Annual Report and Accounts 2015
(c) Movements in the net defined benefit liability Year ended 31 December 2015 Company ––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
10,522
11,284
-
-
21,806
10,522
8,611
-
19,133
494 (1,642) (744)
388 (1,873) (69)
8,596
-
882 (3,515) 7,783
494 (1,642) (744)
295 (1,490) (50)
3,094
789 (3,132) 2,300
8,630
9,730
8,596
-
26,956
8,630
7,366
3,094
19,090
Group ––––––––––––––––––––––––––––––––––––––––––––––––––––––– Shore ScanTech staff MNOPF MNRPF Produkt Total £000 £000 £000 £000 £000 9,777 -
13,460 -
-
(96) 96
23,141 96
9,777 -
9,784 -
-
19,561 -
594 (1,655) 1,806
555 (3,051) 320
-
-
1,149 (4,706) 2,126
594 (1,655) 1,806
413 (1,818) 232
-
1,007 (3,473) 2,038
10,522
11,284
-
-
21,806
10,522
8,611
-
19,133
(d) Changes in the present value of the defined benefit obligation are analysed as follows: Year ended 31 December 2015 Group ––––––––––––––––––––––––––––––––––––––––––––––––––––––– Shore ScanTech staff MNOPF MNRPF Produkt Total £000 £000 £000 £000 £000
Company ––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
As at 1 January 2015 64,326 Current service cost 21 Expenses 105 Interest cost 2,325 Contributions by scheme participants 5 Remeasurement loss/(gain): Actuarial loss arising from scheme experience 74 Actuarial gain arising from changes in demographic assumptions (853) Actuarial gain arising from changes in financial assumptions (1,300) Net benefits paid out (5,258) On recognition -
91,438 3,394 -
-
-
155,764 21 105 5,719 5
64,326 21 105 2,325 5
46,331 1,710 -
-
110,657 21 105 4,035 5
700
-
-
774
74
327
-
401
-
-
-
(853)
(853)
-
-
(853)
(67) (1,873) -
29,290
-
(1,367) (7,131) 29,290
(1,300) (5,258) -
(47) (1,490) -
10,544
(1,347) (6,748) 10,544
59,445
93,592
29,290
-
182,327
59,445
46,831
10,544
116,820
Annual Report and Accounts 2015
75
Financial statements
As at 1 January 2014 Disposal Expense recognised in the income statement Contributions paid to scheme Remeasurement gains and losses
Company ––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
Governance
Year ended 31 December 2014
Strategic report
As at 1 January 2015 Expense recognised in the income statement Contributions paid to scheme Remeasurement gains and losses
Group ––––––––––––––––––––––––––––––––––––––––––––––––––––––– Shore ScanTech staff MNOPF MNRPF Produkt Total £000 £000 £000 £000 £000
James Fisher and Sons plc
Notes to the financial statements continued
22 Retirement benefit obligations continued Year ended 31 December 2014 Group ––––––––––––––––––––––––––––––––––––––––––––––––––––––– Shore ScanTech staff MNOPF MNRPF Produkt Total £000 £000 £000 £000 £000
Company ––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
As at 1 January 2014 59,072 Disposal Current service cost 30 Expenses 143 Interest cost 2,685 Contributions by scheme participants 7 Remeasurement (gain)/loss: Actuarial gain arising from scheme experience (424) Actuarial loss arising from changes in financial assumptions 5,723 Net benefits paid out (2,910)
90,262 4,127 -
-
136 (136) -
149,470 (136) 30 143 6,812 7
59,072 30 143 2,685 7
45,927 2,094 -
-
104,999 30 143 4,779 7
(224)
-
-
(648)
(424)
(106)
-
(530)
323 (3,050)
-
-
6,046 (5,960)
5,723 (2,910)
234 (1,818)
-
5,957 (4,728)
64,326
91,438
-
-
155,764
64,326
46,331
-
110,657
(e) Changes in the fair value of the plan assets are analysed as follows: Year ended 31 December 2015 Group ––––––––––––––––––––––––––––––––––––––––––––––––––––––– Shore ScanTech staff MNOPF MNRPF Produkt Total £000 £000 £000 £000 £000
Company ––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
As at 1 January 2015 53,804 Return on scheme assets recorded in interest 1,957 Remeasurement (gain)/loss: Return on plan assets excluding interest income (1,335) Contributions by employer 1,642 Contributions by scheme participants 5 Net benefits paid out (5,258) On recognition -
80,154
-
-
133,958
53,804
37,720
-
91,524
3,006
-
-
4,963
1,957
1,415
-
3,372
702 1,873 (1,873) -
20,694
-
(633) 3,515 5 (7,131) 20,694
(1,335) 1,642 5 (5,258) -
330 1,490 (1,490) -
7,450
(1,005) 3,132 5 (6,748) 7,450
50,815
83,862
20,694
-
155,371
50,815
39,465
7,450
97,730
Year ended 31 December 2014 Group ––––––––––––––––––––––––––––––––––––––––––––––––––––––– Shore ScanTech staff MNOPF MNRPF Produkt Total £000 £000 £000 £000 £000
Company ––––––––––––––––––––––––––––––––––––––––––– Shore staff MNOPF MNRPF Total £000 £000 £000 £000
As at 1 January 2014 49,295 Disposal Return on scheme assets recorded in interest 2,264 Remeasurement loss/(gain): Return on plan assets excluding interest income 3,493 Contributions by employer 1,655 Contributions by scheme participants 7 Net benefits paid out (2,910)
76,802 -
-
232 (232)
126,329 (232)
49,295 -
36,143 -
-
85,438 -
3,572
-
-
5,836
2,264
1,681
-
3,945
(220) 3,050 (3,050)
-
-
3,273 4,705 7 (5,960)
3,493 1,655 7 (2,910)
(104) 1,818 (1,818)
-
3,389 3,473 7 (4,728)
53,804
80,154
-
-
133,958
53,804
37,720
-
91,524
76
Annual Report and Accounts 2015
(f) History of experience gains and losses 2012 £000
2011 £000
50,815 (59,445)
53,804 (64,326)
49,295 (59,072)
47,367 (57,062)
44,026 (54,866)
Deficit in scheme
(8,630)
(10,522)
(9,777)
(9,695)
(10,840)
Remeasurement (loss)/gain: Return on plan assets excluding interest income Remeasurement (loss)/gain on scheme liabilities
(1,335) (74)
3,493 424
1,965 8
2,262 -
(490) 26
2015 £000
2014 £000
2013 £000
2012 £000
2011 £000
83,862 (93,592)
80,154 (91,438)
76,802 (90,262)
73,944 (91,372)
64,835 (84,054)
(9,730)
(11,284)
(13,460)
(17,428)
(19,219)
2015 £000
2014 £000
2013 £000
2012 £000
2011 £000
39,465 (46,831)
37,720 (46,331)
36,143 (45,927)
37,899 (46,843)
33,231 (43,097)
(7,366)
(8,611)
(9,784)
(8,944)
(9,866)
2015 £000
2014 £000
20,694 (29,290)
-
(8,596)
-
2015 £000
2014 £000
7,450 (10,544)
-
(3,094)
-
Fair value of scheme assets Defined benefit obligation
MNOPF Group Fair value of scheme assets Defined benefit obligation Deficit in scheme MNOPF Company Fair value of scheme assets Defined benefit obligation Deficit in scheme MNRPF Group Fair value of scheme assets Defined benefit obligation Deficit in scheme MNRPF Company Fair value of scheme assets Defined benefit obligation Deficit in scheme
Financial statements
2013 £000
The cumulative amount of actuarial gains and losses relating to all schemes recognised since 1 January 2004 in the Group and Company statement of comprehensive income is a loss of £50.5m (2014: £42.7m). The Directors do not consider it to be possible to determine how much of the pension scheme deficit recognised on transition to IFRS and taken directly to equity of £12.8m in the Group and Company is attributable to actuarial gains and losses since inception of those pension schemes. Consequently the Directors are unable to determine the amount of actuarial gains and losses that would have been recognised in the Group and Company statements of comprehensive income before January 2004. (g) Defined contribution schemes The Group operates a number of defined contribution schemes. The pension charge for the year for these arrangements is equal to the contributions paid and was £3.6m (2014: £4.4m). During the year the Company contributed £0.3m (2014: £0.4m) into defined contribution schemes.
23 Share based payments The Company operates an Executive Share Option Scheme (ESOS) and a Long-Term Incentive Plan (LTIP) in respect of Directors and certain senior employees and details of these are set out in the Director’s remuneration report on pages 33 to 45. The Company also operates a Sharesave scheme (Sharesave) for eligible employees which is HM Revenue and Customs approved.
Sharesave All employees, subject to the discretion of the Remuneration Committee, may apply for share options under an employee save as you earn plan which may from time to time be offered by the Company. An individual’s participation is limited so that the aggregate price payable for shares under option at any time does not exceed the statutory limit. Options granted under the plans will normally be exercisable if the employee remains in employment and any other conditions set by the Remuneration Committee have been satisfied. Options are normally exercisable at the end of the related savings contract but early exercise is permitted in certain limited circumstances. The performance period will not normally be less than three years or greater than seven years. Awards were made under this scheme on 14 April 2015.
LTIP The Company and Group recognises an expense for these benefits provided to employees and the amount charged in respect of equity settled share based payments was £0.2m (2014: £1.2m). The Company has granted conditional awards in the form of options over shares or conditional rights to have shares transferred to certain employees under the LTIP (approved at the 2015 Annual General Meeting) over 321,598 (2014: 357,933) ordinary shares of 25p each.
Annual Report and Accounts 2015
Governance
2014 £000
Strategic report
2015 £000
Shore staff
77
James Fisher and Sons plc
Notes to the financial statements continued
23 Share based payments continued The weighted average exercise prices (WAEP) and movements in share options during the year are as follows: “Nil” options Group
2015 Number
WAEP
2014 Number
Outstanding at 1 January Granted during the year Forfeited during the year Exercised
WAEP
2015 Number
2014 Number
937,098 37,189 (30,572) (151,470)
£6.42 £13.98 £10.90 £4.16
898,601 99,623 (25,138) (35,988)
£5.53 £14.64 £9.20 £4.95
357,933 128,184 (164,519)
476,317 86,035 (204,419)
Outstanding at 31 December
792,245
Exercisable at 31 December
523,306
£7.03
937,098
£6.42
321,598
357,933
£4.79
559,364
£4.47
-
-
The weighted average share price at the date of exercise for the options exercised was £12.89 (2014: £14.15). For the share options outstanding at 31 December 2015, the weighted average remaining contractual life is 3 years and 4 months (2014: 3 years and 7 months). The weighted average fair value of options granted during the year was £8.64 (2014: £8.12). The range of exercise prices for options outstanding at the end of the year was £3.54 - £14.89 (2014: £3.27 - £14.89). “Nil” options Company
2015 Number
WAEP
2014 Number
Outstanding at 1 January Granted during the year Forfeited during the year Exercised
WAEP
2015 Number
2014 Number
776,604 7,528 (5,518) (125,043)
£5.79 £13.98 £9.88 £3.90
735,158 51,221 (9,775)
£5.12 £14.87 £0.00 £3.43
172,667 86,818 (67,391)
237,980 46,736 (112,049)
Outstanding at 31 December
653,571
Exercisable at 31 December
522,928
£6.21
776,604
£5.79
192,094
172,667
£4.79
559,364
£4.47
-
-
The weighted average share price at the date of exercise for the options exercised was £12.78 (2014: £14.29). For the share options outstanding at 31 December 2015, the weighted average remaining contractual life is 4 years and 5 months (2014: 4 years and 6 months). The weighted average fair value of options granted during the year was £10.16 (2014: £14.30). The range of exercise prices for options outstanding at the end of the year was £3.54 - £14.89 (2014: £3.27 - £14.89). The fair value of share based payments has been estimated using the Monte Carlo Statistical model for the 2015 ESOS and the Black Scholes model for the other schemes. The inputs to the models used to determine the valuations fell within the following ranges:
Dividend yield (%) Expected life of option (years) Share price at date of grant Expected share price volatility (%) Risk free interest rate (%)
2015
2014
1.6% 3 - 7.26 £13.35 - £13.98 30% 0.73% - 1.10%
1.5% 3 - 7.26 £13.93 - £14.29 25% 1.30% - 2.12%
24 Business combinations Year ended 31 December 2015 On 15 January 2015 the Group acquired the entire issued share capital of High Technology Sources Limited (HTSL) for a cash consideration of £2.2m. HTSL provides an extensive range of sealed industrial sources and reference and calibration sources through their exclusive UK distribution agreements and is included in the Group’s Specialist Technical division. On 10 February 2015 the Group acquired the entire issued share capital of the National Hyperbaric Centre Limited (NHC) for an initial cash consideration of £3.5m, with further contingent consideration payable of up to £1.0m based on specific future contracts undertaken post completion. NHC operates hyperbaric testing chambers which are used for testing equipment for the subsea industry. Its services include reception personnel for decompression, subsea equipment testing, training services to the diving industry and hyperbaric welding trials to customers worldwide. It is included in the Specialist Technical division. On 2 March 2015 the Group acquired the entire issued share capital of Subtech Group Holdings (Pty) Limited (Subtech), for an initial consideration of £3.3m with potential contingent consideration based on profitability between 2015 and 2017 of up to £14.7m. Subtech, which is based in Durban, South Africa, provides marine and subsea services with operations in Namibia and Mozambique, and is included in the Marine Support division. On 5 May 2015 the Group acquired the entire issued share capital of Mojo Maritime Limited (MML), for an initial consideration of £3.2m. Contingent consideration of up to £0.3m was payable based on profitability for the year ended 31 December 2015. MML provides specialist design and consultancy services in the offshore renewable energy sector and is included in the Specialist Technical division. On 13 May 2015 the Group acquired the assets and intellectual property rights of X-Subsea UK Holdings Limited (X-Subsea) for a cash consideration of £14.8m. X-Subsea, which is now part of James Fisher Subsea Excavation within Marine Support, operates excavation, trenching and dredging equipment, to the subsea market in the oil and gas, telecoms and renewable energy sectors. On the 1 November 2015 the Group acquired the remaining 55% beneficial interest of a number of companies, alternatively known as Fendercare Nigeria for an initial consideration of £5.3m with a further £0.7m payable on 31 October 2016. This is included within deferred consideration in the other acquisitions table as the initial consideration was settled in early 2016.
78
Annual Report and Accounts 2015
The fair values of the assets and liabilities acquired are set out below: Fair value adjustments £000
Total £000
Intangible assets Property, plant and equipment Inventories Trade and other receivables Cash and short-term deposits Trade and other payables Interest bearing loans and borrowings Deferred tax
3,267 134 2,496 418 (2,928) (815) -
543 (497) (341) (416) 199
543 2,770 134 2,155 418 (3,344) (815) 199
Fair value of net assets acquired Goodwill
2,572
(512)
2,060 11,596
Consideration: Cash consideration Contingent consideration
3,324 10,332
Governance
13,656
Strategic report
Subtech
Book value £000
13,656 Fair value adjustments £000
Total £000
Intangible assets Property, plant and equipment Inventories Trade and other receivables Cash and short-term deposits Trade and other payables
3,000 6,472 259 203 78 (2,603)
(78) 2,166
3,000 6,472 259 125 78 (437)
Fair value of net assets acquired Goodwill
7,409
2,088
9,497 5,303
Cash consideration
14,800
Other acquisitions
Book value £000
Fair value adjustments £000
Total £000
Intangible assets Property, plant and equipment Inventories Trade and other receivables Cash and short-term deposits Trade and other payables Interest bearing loans and borrowings Deferred tax
1,049 5,813 566 3,749 3,044 (8,005) (168) (132)
(243) (80) (45) (862) (492) (161)
806 5,813 486 3,704 3,044 (8,867) (660) (293)
Fair value of net assets acquired Goodwill arising on acquisitions
5,916
(1,883)
4,033 13,287 17,320
Consideration: Cash consideration Deferred consideration
11,349 5,971 17,320
Annual Report and Accounts 2015
79
Financial statements
X-Subsea
Book value £000
James Fisher and Sons plc
Notes to the financial statements continued
24 Business combinations continued The book value of these business combinations has been adjusted for fair value adjustments relating to recognised in respect of intangible assets relating to customer relationships, the write down of irrecoverable debtors and amounts capitalised as intangibles. None of the goodwill is expected to be deductible for income tax purposes. Subtech £000
X Subsea £000
Other £000
Total £000
Cash paid Cash and short-term deposits acquired
3,324 (418)
14,800 (78)
11,349 (3,044)
29,473 (3,540)
Acquisition of business net of cash acquired Interest bearing borrowings acquired Acquisition costs
2,906 815 625
14,722 249
8,305 660 451
25,933 1,475 1,325
4,346
14,971
9,416
28,733
Cash flow in respect of business combinations
Contribution to Group results The businesses acquired during the period contributed £1.6m to the Group’s profit after tax and £35.8m of revenues. If these businesses had been acquired at the start of the financial year the contribution to Group profit after tax would have been £3.6m with revenue of £55.3m.
Disposals On the 1 November 2015, the Group disposed of its 100% holding in Strainstall AS for a consideration of £0.1m. The loss on disposal after related costs was £0.7m. On the 17 November 2015, the Group disposed of the assets of the Plymouth branch of Fendercare Limited for a consideration of £0.1m. The loss on disposal after related costs was £0.3m.
25 Loans and borrowings
Non-current liabilities
Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000
Bank loans Finance leases
Current liabilities
116,550 95
79,865 34
116,550 -
79,865 -
116,645
79,899
116,550
79,865
Group ––––––––––––––––––––––––––––– 2014 2015 £000 £000
Overdrafts Finance leases
Company ––––––––––––––––––––––––––––– 2015 2014 £000 £000
Company ––––––––––––––––––––––––––––– 2015 2014 £000 £000
106
54
2,881 -
23,944 -
106
54
2,881
23,944
Bank loans Loans analysed by currency are repayable as follows: Year ended 31 December 2015
Currency
Group ––––––––––––––––––––––––––––––– GBP USD Total £000 £000 £000
Company ––––––––––––––––––––––––––––––– GBP USD Total £000 £000 £000
Due between one and two years Due between two and five years
9,385 89,525
7,802 9,838
17,187 99,363
9,385 89,525
7,802 9,838
17,187 99,363
98,910
17,640
116,550
98,910
17,640
116,550
Year ended 31 December 2014
Currency
Group ––––––––––––––––––––––––––––––– GBP USD Total £000 £000 £000
Company ––––––––––––––––––––––––––––––– GBP USD Total £000 £000 £000
Due between one and two years Due between two and five years Due after more than five years
12,273 46,138 14,400
7,054 -
12,273 53,192 14,400
12,273 46,138 14,400
7,054 -
12,273 53,192 14,400
72,811
7,054
79,865
72,811
7,054
79,865
80
Annual Report and Accounts 2015
The interest rates charged during the year ranged from 1.6% to 2.2% (2014: 1.75% to 2.5%). There were no loans secured against the assets of the Group or Company in the current or prior period.
Strategic report
Obligations under finance leases and hire purchase contracts Group The Group uses finance leases in respect of certain items of plant and equipment. The minimum future lease payments due under finance leases and hire purchase contracts are as follows: Group –––––––––––––––––––––– 2015 2014 £000 £000 129 117
65 38
Less: finance charges allocated to future periods
246 (45)
103 (15)
201
88
106 95
54 34
201
88
Governance
Future minimum payments due: Within one year Within two to five years
Present value of minimum lease payments is analysed as follows: Within one year Within two to five years
The Company does not have any outstanding finance lease commitments.
26 Reconciliation of net debt Net debt comprises interest bearing loans and borrowings less cash and cash equivalents. 1 January 2015 £000
Cash flow £000
Other non cash £000
Exchange movement £000
31 December 2015 £000
Cash in hand and at bank Debt due after 1 year Finance leases
17,719 (79,965) (88)
5,745 (35,807) 102
1,276 (247)
(502) (2,154) 32
22,962 (116,650) (201)
Net debt
(62,334)
(29,960)
1,029
(2,624)
(93,889)
1 January 2014 £000
Cash flow £000
Other non cash £000
Exchange movement £000
31 December 2014 £000
Cash in hand and at bank Debt due after 1 year Finance leases
23,982 (78,049) (211)
(5,177) (1,720) 546
53 (429)
(1,086) (249) 6
17,719 (79,965) (88)
Net debt
(54,278)
(6,351)
(376)
(1,329)
(62,334)
Group
27 Financial instruments Capital management The primary objective of the Group’s capital management policy is to maintain a strong credit rating and covenant ratios in order to be able to support the continued growth of its trading businesses and so maximise shareholder value. The Group meets its day to day working capital requirements through operating cash flows, with borrowings in place to fund acquisitions and capital expenditure. At 31 December 2015 the Group had £67.4m (2014: £81.4m) of undrawn committed facilities of which £20.0m expires within twelve months. The Group is required under the terms of its loan agreements to maintain covenant ratios in respect of net debt to earnings before interest and depreciation and amortisation (EBITDA), net interest costs to earnings before interest (EBIT) and EBIT and operating lease costs to net interest and operating lease costs. The Group met its covenant ratios for the year ended 31 December 2015. The Directors have prepared forecasts of the cash flows for the subsequent eighteen month period which indicate that taking into account the factors noted above the Group will meet its covenant requirements for this period. The total amount that it is able to borrow under existing revolving credit facilities is limited to a maximum of £165m (2014: £150m).
Annual Report and Accounts 2015
81
Financial statements
Company
James Fisher and Sons plc
Notes to the financial statements continued
27 Financial instruments continued The Group manages its capital structure so as to maintain investor, supplier and market confidence and to provide returns to shareholders that will support the future development of the business. Capital is monitored by measuring the gearing ratio which is a measure derived from net debt divided by capital. Net debt comprises interest bearing loans and borrowings less cash and cash equivalents. Capital represents net equity attributable to the equity holders of the parent. Return on capital employed is also monitored. The Group’s dividend policy is based on the expected growth in sustainable income streams after making provision for the retention of capital to invest in growth and acquisitions. In evaluating growth investment opportunities the Group has a target of a 15% return on the capital invested.
Interest bearing loans and borrowings Less cash and cash equivalents Net debt Equity attributable to the equity holders of the parent Gearing ratio
2015 £000
2014 £000
116,751 (22,962)
79,953 (17,719)
93,789
62,234
218,007
202,754
43.0%
30.7%
The reasons for the change in gearing over the previous year are discussed in the Strategic report on pages 1 to 23. The Group has exposure to the following risks:
(a)
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. These arise principally from the Group’s receivables from customers and from cash balances held with financial institutions. The carrying amount of financial assets represents the maximum credit exposure. There are no significant concentrations of credit risk within the Group. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer and the industry and country in which each customer operates. The Group has a number of large customers including government agencies in the UK and overseas, major oil companies and other multinational corporations. The ten largest customers of the Group accounted for approximately 33% of Group revenue (2014: 37%). No customer accounted for more than 7% (2014: 7%) of Group revenue. New customers are subject to creditworthiness checks and credit limits are subject to approval by senior management. Goods are sold subject to retention of title clauses so that in the event of non-payment the Group may have a secured claim. The maximum exposure to credit risk at the reporting date was: Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000 Available for sale financial assets Receivables Cash and cash equivalents Interest rate swaps used for hedging: Assets
1,478 130,081 22,962
1,478 108,142 17,719
Company ––––––––––––––––––––––––––––– 2015 2014 £000 £000 1,368 7,622 7,629
1,368 4,385 402
2
49
2
49
154,523
127,388
16,621
6,204
Trade receivables are non-interest bearing and are generally on 30 to 60 days terms. At 31 December the value of trade debtors outstanding was: Group ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2015 2014 ––––––––––––––––––––––––––––– ––––––––––––––––––––––––––––– gross allowance gross allowance £000 £000 £000 £000 Not past due Past due
31,413 39,005
(1,319)
43,665 26,074
(815)
70,418
(1,319)
69,739
(815)
Group ––––––––––––––––––––––––––––– gross gross 2015 2014 £000 £000 Not yet due Overdue 1 to 30 Days Overdue 31 to 60 Days Overdue 61 to 90 Days Overdue more than 90 Days
82
Company ––––––––––––––––––––––––––––– gross gross 2015 2014 £000 £000
31,413 16,322 9,323 6,406 6,954
43,665 11,257 5,647 2,382 6,788
-
14 -
70,418
69,739
-
14
Annual Report and Accounts 2015
The movement in the provision for impairment of trade receivables is as follows:
Balance at 1 January Exchange differences On acquisition of subsidiaries Provided in the year Recoveries Write offs
815 (2) 442 549 (103) (382)
1,074 (1) 76 247 (343) (238)
1,319
815
(b)
Liquidity risk
Governance
The Group considers that the trade receivables that have not been provided against and are past due by more than 30 days are still collectible based on historic payment behaviour and extensive analysis of underlying customers’ credit ratings. Based on historic default rates, the Group believes that apart from the amounts included in the table above, no impairment allowance is necessary in respect of trade receivables. There is no provision for impairment of trade receivables in the Company.
Strategic report
Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages its cash resources to ensure that it will have sufficient liquidity to meet its liabilities as they fall due but in a manner designed to maximise the benefit of those resources whilst ensuring the security of investment resources.The Group forecasts the profile of its cash requirements on a monthly basis and ensures that sufficient facilities are available to meet peak requirements which occur at predictable times in the year. The Group manages the maturity profile of its borrowings by maintaining a regular dialogue with its lenders and ensuring that it commences the renegotiation of facilities sufficiently early to allow a comprehensive review of its requirements before completion.
The following are the contractual maturities of financial liabilities, including interest payments: 31 December 2015
Group Non-derivative financial liabilities: Unsecured bank loans Finance lease liabilities Trade and other payables Derivative financial liabilities: Interest rate swaps used for hedging Forward exchange contracts used for hedging: Outflow
Carrying amount £000
Contractual cash flows £000
Within 1 year £000
1-2 years £000
2-5 years £000
116,550 201 107,540
(125,649) (201) (107,540)
(11) (106) (107,540)
(17,396) (95) -
(108,242) -
(541)
(965)
(301)
(301)
(363)
(905)
(34,823)
(31,203)
(3,620)
-
222,845
(269,178)
(139,161)
(21,412)
(108,605)
Carrying amount £000
Contractual cash flows £000
Within 1 year £000
1-2 years £000
2-5 years £000
More than 5 years £000
79,865 88 97,059
(87,775) (88) (97,059)
(2,433) (54) (97,059)
(14,002) (34) -
(56,907) -
(14,433) -
(651)
(1,723)
(577)
(323)
(808)
(15)
1,664 (23)
(1,563) 13,564
(1,563) 13,564
-
-
-
178,002
(174,644)
(88,122)
(14,359)
(57,715)
(14,448)
31 December 2014
Group Non-derivative financial liabilities: Unsecured bank loans Finance lease liabilities Trade and other payables Derivative financial liabilities: Interest rate swaps used for hedging Forward exchange contracts used for hedging Outflow Inflow
Annual Report and Accounts 2015
83
Financial statements
The Group’s revolving credit facilities extend over several accounting periods and fall due for renewal in different accounting periods ensuring that the Group negotiations with individual lenders follow an orderly process which does not expose the Group to the possibility of a significant reduction in available facilities in a single period. At 31 December 2015, the Group had available £67.4m (2014: £81.4m) of undrawn committed bank facilities.
James Fisher and Sons plc
Notes to the financial statements continued
27 Financial instruments continued 31 December 2015 Carrying amount £000
Contractual cash flows £000
Within 1 year £000
1-2 years £000
2-5 years £000
116,550 8,887
(125,649) (8,887)
(11) (8,887)
(17,396) -
(108,242) -
(541)
(965)
(301)
(301)
(363)
(905)
(34,823)
(31,203)
(3,620)
-
123,991
(170,324)
(40,402)
(21,317)
(108,605)
Carrying amount £000
Contractual cash flows £000
Within 1 year £000
1-2 years £000
2-5 years £000
More than 5 years £000
103,809 17,055
(111,719) (17,055)
(26,377) (17,055)
(14,002) -
(56,907) -
(14,433) -
(651)
(1,146)
(323)
(323)
(500)
-
1,664 (23)
(1,563) 13,564
(1,563) 13,564
-
-
-
121,854
(117,919)
(31,754)
(14,325)
(57,407)
(14,433)
Company Non-derivative financial liabilities: Unsecured bank loans Trade and other payables Derivative financial liabilities: Interest rate swaps used for hedging Forward exchange contracts used for hedging: Outflow
31 December 2014
Company Non-derivative financial liabilities: Unsecured bank loans Trade and other payables Derivative financial liabilities: Interest rate swaps used for hedging Forward exchange contracts used for hedging: Outflow Inflow
(c)
Foreign exchange risk
The Group is exposed to foreign currency risks on sales, purchases, cash and borrowings denominated in currencies other than Sterling. These transactional exposures are exposed to movement in mainly the US Dollar and the Euro. The Group uses forward exchange contracts to hedge its transactional exposures. Most forward exchange contracts have maturities of less than one year after the balance sheet date. Forward exchange contracts which qualify as effective cash flow hedges are stated at fair value. The principal translation exposure relates to the Norwegian Kroner. The Group’s exposure to foreign currency risk in its principal currencies was as follows based on notional amounts: 31 December 2015
–––––––––––––––––––––––––––––––––––––––––––––
31 December 2014
–––––––––––––––––––––––––––––––––––––––––––
USD 000
EUR 000
NOK 000
SGD 000
AUD 000
AKZ 000
USD 000
EUR 000
NOK 000
SGD 000
AUD 000
AKZ 000
Trade receivables
20,981
2,826
-
-
-
3,324
44,282
2,649
53,271
9,205
4,731
-
Cash at bank and in hand
1,113
1,719
41
(179)
19,569
6,569
3,736
2,027
11,186
589,914
-
-
-
-
-
-
(11,000)
-
-
-
-
-
Trade payables
(2,083)
(2,826)
(4,142)
(129)
13
(5,386)
(10,618)
(5,639)
(14,796)
(2,911)
Gross balance sheet exposure
20,011
1,719
(4,101)
(308)
111 1,469,411
42,233
3,579
42,211
8,321
Unsecured bank loans
98 1,471,473
(1,503) (318,553) 14,414
271,361 -
Forecast sales
140,977
17,607
-
565
-
-
20,113
1,190
29,050
2,051
4,886
Forecast purchases
(62,499)
(22,256)
(1,352)
(1,187)
(17)
-
(9,510)
(1,550)
(9,055)
(1,830)
(2,265)
-
Gross exposure
98,489
(2,930)
(5,453)
(930)
94 1,469,411
52,837
3,219
62,206
8,542
17,035
271,361
Forward exchange contracts
(51,326)
-
-
-
Net exposure
47,163
(2,930)
(5,453)
(930)
-
(22,668)
1,956
-
-
-
-
94 1,469,411
-
30,169
5,175
62,206
8,542
17,035
271,361
At 31 December 2015 the Group’s cash balances included £7.4m (2014: £3.7m) denominated in Angolan Kwanza and held in James Fisher Angola Limitada. A change in Angolan legislation effective from 1 July 2013 required in-country monetary transfers to be transacted in local currency. Exchange control regulations can potentially impact the transferability of cash balances in certain countries of operation.
84
Annual Report and Accounts 2015
2015 ––––––––––––––––––––––––––– Income Equity statement £000 £000
(d)
(1,874) 31 (77) (454) (331) (327) (57) (50)
(3,972) 54 (253) (46) (309) 25 (48) (231)
(1,433) (246) (131) (365) (408) (411) (40) -
(3,477) (140) 266 (44) (251) (160) 18 -
(3,139)
(4,780)
(3,034)
(3,788)
Interest rate risk
Fixed rate instruments: Financial liabilities Variable rate instruments: Financial assets Financial liabilities
(100)
(100)
(100)
(100)
22,962 (116,550)
17,719 (79,865)
7,629 (119,431)
402 (103,809)
(93,588)
(62,146)
(111,802)
(103,407)
Where hedging criteria are met the Group classifies interest rate swaps as cash flow hedges and states them at fair value. Over the longer term permanent changes in interest rates would have an impact on consolidated earnings. At 31 December 2015 a general increase of one percentage point would have had the following impact: 2015 2014 Income Income statement statement £000 £000 Variable rate instruments Interest rate swap
(936) 310
(621) 310
Cash flow sensitivity
(626)
(311)
Fair values
There are no material differences between the book value of financial assets and liabilities and their fair value other than set out below.
Group Liabilities carried at amortised cost: Unsecured bank loans Trade and other payables Finance leases Preference shares
Annual Report and Accounts 2015
Notes 25 21 25 19
2015 2014 –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Carrying Fair Carrying Fair value value value value £000 £000 £000 £000 (116,550) (107,540) (201) (100)
(115,962) (107,540) (192) (100)
(79,865) (87,973) (88) (100)
(74,727) (87,973) (90) (100)
(224,391)
(223,794)
(168,026)
(162,890)
85
Financial statements
The Group uses interest rate swaps to convert interest rates on certain borrowings from floating rates to fixed hedge exposure to fluctuations in interest rates. The interest rate profile of the Group’s financial assets and liabilities are set out in the table below. Group Company ––––––––––––––––––––––––––––– ––––––––––––––––––––––––––––– 2015 2014 2015 2014 £000 £000 £000 £000
(e)
Governance
US Dollar Norwegian Kroner Euro UAE Dirham Singapore Dollar Australian Dollar Malaysian Ringgit South African Rand
2014 ––––––––––––––––––––––––––– Income Equity statement £000 £000
Strategic report
Changes in the level of exchange rates will have an impact on consolidated earnings. The following table shows the impact on earnings of a 5% strengthening in the exchange rate in the Group’s key currencies against Sterling. The obverse movements would be of the same magnitude. These amounts have been calculated by applying changes in exchange rates to the Group’s foreign currency profits and losses and to financial instruments denominated in foreign currency.
James Fisher and Sons plc
Notes to the financial statements continued
27 Financial instruments continued
Company Liabilities carried at amortised cost: Overdrafts Unsecured bank loans Trade and other payables Preference shares
Notes
2015 2014 –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Carrying Fair Carrying Fair value value value value £000 £000 £000 £000
25 25 21 19
(2,881) (113,669) (8,887) (100)
(2,881) (113,081) (8,887) (100)
(23,944) (79,865) (17,055) (100)
(23,944) (74,727) (17,055) (100)
(125,537)
(124,949)
(120,964)
(115,826)
Fair value has been determined by reference to the market value at the balance sheet date or by discounting the relevant cash flows using current interest rates for similar instruments. The fair value of the financial assets has been assessed by the Directors with reference to the current prospects of the investments and risks associated with those prospects.
Fair value hierarchy The Group classifies fair value measurement using a fair value hierarchy that reflects the significance of inputs used in making measurements of fair value. The fair value hierarchy has the following levels: (a)
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
(b)
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
(c)
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Financial instruments carried at fair value are all level 2 as set out below:
Group Financial assets measured at fair value: Forward exchange contracts - cash flow hedges Financial liabilities measured at fair value: Forward exchange contracts - cash flow hedges Forward exchange contracts - other derivatives Interest rate swaps - cash flow hedges Financial liabilities not measured at fair value: Unsecured bank loans Finance leases
Company Financial assets measured at fair value: Forward exchange contracts - cash flow hedges Financial liabilities measured at fair value: Forward exchange contracts - cash flow hedges Forward exchange contracts - other derivatives Interest rate swaps - cash flow hedges Financial liabilities not measured at fair value: Unsecured bank loans
Level 2 ––––––––––––––––––– 2015 2014 £000 £000 2
49
(901) (6) (541)
(1,685) (6) (651)
(115,962) -
(74,727) (90)
(117,410)
(77,159)
(117,408)
(77,110)
Level 2 ––––––––––––––––––– 2015 2014 £000 £000 2
49
(901) (6) (541)
(1,685) (6) (651)
(113,081)
(74,727)
(114,529)
(77,069)
(114,527)
(77,020)
There have been no transfers between categories during the period. The fair value of interest rate swap contracts and forward exchange contracts are calculated by management based on external valuations received from the Group’s bankers and is based on forward exchange rates and anticipated future interest yields respectively.
86
Annual Report and Accounts 2015
Fair value hedges - Group & Company At 31 December 2015 and 31 December 2014 the Group did not have any outstanding fair value hedges.
At 31 December 2015 the Group and Company held forward currency contracts designated to hedge future commitments in US Dollars and Euro. The terms of the contracts are as follows:
Sell US$ 51,325,998
Maturity
Exchange rate
Fair value £000
January 2016-February 2017
1.51
(845)
January 2016
1.30
(54)
Buy Eur 906,000
Sell US$ 22,668,000 Buy Eur 1,955,587
January 2015-February 2016
1.76
(1,659)
April 2015-January 2016
1.25
(7)
Interest rate swaps The Group and Company entered into interest rate swap contracts in respect of Sterling denominated debt to swap a variable rate liability for a fixed rate liability. These instruments have been allocated against the Group and Company debt in the tables shown above. Details of the contracts and their fair values at 31 December are set out below: Amount –––––––––––––––––––––– 2015 2014 £000 £000 Sterling interest rate swaps
31,000
31,000
Fixed rate %
Maturity 30 January 2017 to 30 January 2019
Fair value –––––––––––––––––––––– 2015 2014 £000 £000
1.03% - 3.71%
(541)
(651)
Derivative financial instruments not qualifying as hedges At 31 December 2015 and 31 December 2014 the Group did not hold any derivative financial instruments which did not qualify for hedge accounting.
28 Commitments and contingencies Operating leases The Group has entered into leases on certain properties, vessels, plant and motor vehicles. These leases have a life of between one and ten years and are renewable at the option of the lessee. The future minimum rentals payable under non-cancellable operating leases at 31 December are as follows: Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000 Within one year After one year but not more than five years After five years
Company ––––––––––––––––––––––––––––– 2015 2014 £000 £000
14,257 19,504 7,563
13,101 16,811 10,499
194 311 523
205 243 5
41,324
40,411
1,028
453
Capital commitments At 31 December capital commitments for which no provision has been made in these accounts amounted to: Group ––––––––––––––––––––––––––––– 2015 2014 £000 £000 928
3,895
Company ––––––––––––––––––––––––––––– 2015 2014 £000 £000 -
-
Contingent liabilities (a)
In the ordinary course of the Company’s business, counter indemnities have been given to bankers in respect of custom bonds, foreign exchange commitments and bank guarantees.
(b)
A Group VAT registration is operated by the Company and 28 Group undertakings in respect of which the Company is jointly and severally liable for all amounts due to HM Revenue & Customs under the arrangement.
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Financial statements
The foreign exchange contracts have been negotiated to match the expected profile of receipts. At 31 December 2015 these hedges were assessed to be highly effective and an unrealised loss of £0.8m (2014: £2.6m) relating to the hedging instruments is included in equity.
Governance
At 31 December 2014 the Group and Company held forward currency contracts designated to hedge future commitments in US Dollars and Euro. The terms of the contracts are as follows: Exchange Fair value Maturity rate £000
Strategic report
Cash flow hedges - Group & Company
James Fisher and Sons plc
Notes to the financial statements continued
28 Commitments and contingencies continued (c)
A guarantee has been issued by the Group and Company to charter parties in respect of obligations of a subsidiary, James Fisher Everard Limited, in respect of charters relating to seven vessels. The charters expire between 2016 and 2017.
(d)
Subsidiaries of the Group have issued performance and payment guarantees to third parties with a total value of £5.9m (2014: £4.7m).
(e)
The Group is liable for further contributions in the future to the MNOPF and MNRPF if additional actuarial deficits arise or if other employers liable for contributions are not able to pay their share. The Group and Company remains jointly and severally liable for any future shortfall in recovery of the deficit.
(f)
The Group has given an unlimited guarantee to the Singapore Navy in respect of the performance of First Response Marine Pte Ltd, its Singapore joint venture, in relation to the provision of submarine rescue and related activities.
(g)
In the normal course of business, the Company and certain subsidiaries have given parental and subsidiary guarantees in support of loan and banking arrangements.
29 Related party transactions Transactions with related parties Company The Company has entered into transactions with its subsidiary undertakings primarily in respect of the provision of accounting services, finance and the provision of share options to employees of subsidiaries. The amount outstanding from subsidiary undertakings to the Company at 31 December 2015 was £143.1m (2014: £118.8m). Amounts owed to subsidiary undertakings by the Company at 31 December 2015 totalled £5.1m (2014: £12.9m). The Company has had no expense in respect of bad or doubtful debts of subsidiary undertakings in the year (2014: £nil).
Group FCM businesses The Group has interests of between 40% and 50% in several joint ventures providing ship-to-ship transfer services in Northern Europe and Asia through its wholly owned subsidiary, Fendercare Marine Services Limited. Details of transactions with the FCM businesses are set out below.
First Response Marine The Group holds through its James Fisher Marine Services subsidiary (JFMS) a 50% interest in First Response Marine Pte Ltd (FRM). FRM provides submarine rescue services to the Singapore government under a 20 year service contract which commenced in March 2009. FRM subcontracts part of the provision of the submarine rescue service to JFMS’s subsidiary, James Fisher Singapore Pte Ltd. JFMS has also provided a loan to FRM of £1.8m to support its day to day operations. The loan which is included in the Group balance sheet as part of the investment in joint ventures is interest bearing and is repayable at the end of the project. Interest charged in the period amounted to £0.1m (2014: £0.1m). Dividends received or receivable during the period included in the results of the Group are £0.6m (2014: £0.5m).
DivexDomeyer The Group, through its JFD Limited subsidiary has a 50% stake in DivexDomeyer, an entity which provides in-service support and aftermarket services to customers in Germany. Details of equipment sales to this entity are set out in the table below.
Eurotestconsult The Group through its Testconsult Limited subsidiary, has a 50% stake in Eurotestconsult, an entity which provides testing services to customers in Europe. Details of service sales and recharges for labour and subcontractor works to this entity are set out in the table below.
James Fisher Angola Loans totalling £2.2m have been advanced by James Fisher Angola Limitada to Bouclier Limitada a company controlled by the Group’s joint venture partner. The loans which are unsecured and do not carry interest, represent an advance payment in respect of the borrower’s future entitlement to dividends from James Fisher Angola Limitada. Details of the transactions carried out with related parties are shown in the table below:
FCM businesses First Response Marine DivexDomeyer Eurotestconsult
2015 2014 2015 2014 2015 2014 2015 2014
Services to related parties £000
Sales to related parties £000
Purchases from related parties £000
Amounts owed by related parties £000
Amounts owed to related parties £000
735 603 -
1,848 9,332 2,979 2,629 228 368 921 1,061
733 658 170 228 -
370 5,159 828 661 66 111 207 137
289 1,506 -
No provision for bad debts has been made in respect of these balances (2014: £nil). No bad debts arose during the period relating to these transactions (2014: £nil). All transactions with related parties are priced on an arms length basis on terms equivalent to those provided to wholly external parties.
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30
Significant accounting policies
30.1 Basis of preparation of the consolidated financial statements The results of subsidiaries are consolidated for the periods from or to, which control has passed. Control exists when the Company controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investees and has the ability to affect those returns through its power over the investee. Acquisitions are accounted for under the purchase method of accounting from the acquisition date, which is the date on which control is passed to the Group. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, income and expenses are eliminated in the consolidated financial statements.
Strategic report
The principal accounting policies, which have been applied consistently throughout the year and the preceding year, are set out below. During the year the Company and Group have adopted the amendments to IAS 19, Defined Benefit Plans: Employee Contributions which has had no financial impact.
Payment for the future services from employees or former owners are expensed. Any payments to employees or former owners in respect of the acquisition of the business are capitalised. This is carefully managed during the acquisition process so that former owners and/or employees do not receive any incentive payments during an earn out period.
Governance
Joint arrangements A joint arrangement is an arrangement over which the Group and one or more third parties have joint control. These joint arrangements are in turn classified as: •
Joint ventures whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities; and
•
Joint operations whereby the Group has rights to the assets and obligations for the liabilities relating to the arrangement.
Non-controlling interests Non-controlling interests represent the proportion of profit or loss and net assets not held by the Group and are presented separately in the income statement and in the consolidated statement of financial position. On the acquisition of non-controlling interests, the difference between the consideration paid and the fair value of the share of net assets acquired is recognised in equity. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.
Company investments in subsidiaries and joint ventures In its separate financial statements the Company recognises its investments in subsidiaries and joint ventures at cost. Income is recognised from these investments when its right to receive the dividend is established.
30.2 Foreign currency (a) Group The financial statements of subsidiary undertakings are prepared in their functional currency which is the currency of the primary economic environment in which they operate. For the purpose of the consolidated financial statements, the results and financial position of each entity are translated into UK Sterling, which is the Group’s presentational currency.
(i)
Foreign currency transactions in functional currency Transactions in currencies other than the entities functional currency are initially recorded at rates of exchange prevailing on the date of the transaction. At each subsequent balance sheet date:
(ii)
(i)
Foreign currency monetary items are retranslated at rates prevailing on the balance sheet date and any exchange differences recognised in the income statement;
(ii)
Non-monetary items measured at historical cost are not retranslated;
(iii)
Non-monetary items measured at fair value are retranslated using exchange rates at the date the fair value was determined. Where a gain or loss is recognised directly in equity, any exchange component is also recognised in equity and conversely where a gain or loss is recognised in the income statement, any exchange component is recognised in the income statement.
Net investment in foreign operations Exchange differences arising on monetary items forming part of the Group’s net investment in overseas subsidiary undertakings, which are denominated in the functional currency of the subsidiary undertaking, are taken directly to the translation reserve and subsequently recognised in the consolidated income statement on disposal of the net investment. Exchange differences on foreign currency borrowings, to the extent that they are used to provide an effective hedge against Group equity investments in foreign currency, are taken directly to the translation reserve.
(iii)
Translation from functional currency to presentational currency The assets and liabilities of operations, where the functional currency is different from the Group’s presentational currency are translated at the period end exchange rates. Income and expenses are translated at the average exchange rate for the reporting period. All other exchange differences on transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Resulting exchange differences are recognised in the consolidated statement of other comprehensive income. Tax charges and credits attributable to exchange differences included in the reserve are also dealt with in the translation reserve.
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Financial statements
Any investment in joint ventures is carried in the balance sheet at cost plus the Group’s post acquisition share in the change in net assets of the joint ventures, less any impairment provision. The income statement reflects the Group’s share of the post tax result of the joint ventures. The Group’s share of any changes recognised by the joint venture in other comprehensive income are also recognised in other comprehensive income.
James Fisher and Sons plc
Notes to the financial statements continued
30
Significant accounting policies continued (b) Company Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. Exchange differences arising on settlement of monetary items or on the retranslation of monetary items at rates different from those at which they were initially recognised, are taken to the income statement. All exchange differences on assets and liabilities denominated in foreign currencies are taken to the income statement, other than investments in foreign operations and foreign currency borrowings used to hedge those investments, where exchange differences are taken to the translation reserve.
30.3 Financial instruments (a) Loans and receivables These comprise non-derivative financial assets such as trade receivables, with fixed or determinable payments, that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method if the time value of money has a significant impact on their value less any impairment losses. Gains and losses are recognised in the income statement when the loans or receivables are derecognised, impaired or amortised. If in a subsequent period the factors which indicated the original decision to impair the asset cease to exist, then the previously recognised impairment loss is reversed subject to the revised carrying value of the asset not exceeding its amortised cost at the date the impairment is reversed. Any reversal of an impairment loss is recognised in the income statement.
(b) Available for sale financial assets Available for sale financial assets are non-derivatives that are included as non-current assets unless intended to be disposed of within twelve months of the balance sheet date. After initial recognition, they are measured at fair value with gains and losses being recognised in the statement of other comprehensive income until the investment is derecognised or deemed to be impaired, at which point the cumulative gain or loss previously reported in equity is included in the income statement in the period in which it arises. Any impairment loss in respect of an available for sale asset is transferred from other comprehensive income to the income statement and any reversal of impairment losses is not recognised in the income statement. Where investments are held in unlisted equity shares where there is no active market the investment is held at cost and is subject to an annual impairment review.
(c) Derivative financial instruments Derivative financial instruments are classified as held for trading unless they are designated as hedging instruments. Assets are carried in the balance sheet at fair value with gains or losses recognised in the income statement unless designated as a hedging instrument. The Group is exposed to foreign exchange risk arising from currency exposures, primarily relating to the US Dollar, Euro and Norwegian Kroner. It is also exposed to the risk of interest rate changes in its borrowings. The Group uses derivative financial instruments to manage risk, in the form of foreign currency contracts, to manage foreign exchange risk and interest rate swaps to reduce exposure to interest rate movements. The Group does not hold or issue derivative financial instruments for speculative purposes. All derivatives are initially recognised at fair value on the date that the derivative contract is entered into and are subsequently re-measured at their fair value at the balance sheet date. Fair value is calculated by reference to current forward exchange contracts with similar maturity profiles, and for interest rate swaps determined by reference to market values for similar instruments. The recognition of the gains or losses arising on these movements in fair value depends on whether a derivative is designated as a hedge and if so, the nature of the item being hedged. The Group recognises two classes of hedges for derivative financial instruments: •
Hedges of the fair value of recognised assets or liabilities or an unrecognised firm commitment (fair value hedge);
•
Hedges of highly probable forecast transactions or recognised assets or liabilities (cash flow hedge).
(i)
Cash flow hedges Cash flow hedges can include forward foreign currency contracts if the instrument is related to a foreign currency risk of a firm commitment, it involves the same currency as the hedged item; and it reduces the risk of foreign currency exchange movements on the Group’s operations. Cash flow hedges may also include interest rate swaps where the instrument is related to a recognised asset or a liability and it changes the character of the interest rate by converting a variable rate to a fixed rate. The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges are recognised in the consolidated statement of other comprehensive income. Gains or losses arising on any portion deemed to be ineffective are recognised immediately in the income statement. Where the hedge relates to a firm commitment or forecast transaction which subsequently results in the recognition of an asset or liability, the cumulative gain or loss relating to that item is removed from equity and included in the initial measurement of the asset or liability. Otherwise the cumulative amount is removed from equity and recognised in the income statement at the same time as the related movements on the hedged transaction. When the term of the hedging instrument expires or it is sold, or where the hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss included in other comprehensive income is retained in equity until either the related forecast transaction occurs, in which case it is recognised in accordance with the policy stated above, or if the hedged transaction is not expected to take place, it is recognised immediately in the income statement.
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(ii) Fair value hedges
(iii) Interest-bearing loans and other borrowings All interest-bearing loans and other borrowings are initially recorded at fair value, which represents the fair value of the consideration received net of any issue costs associated with other borrowings. Finance charges, including any premiums payable on settlement or redemption of debt instruments including preference shares and the direct costs of issue, are accounted for on an amortised cost basis in the income statement. Charges are calculated using the effective interest method, and are recognised in the income statement over the term of such instruments at a constant rate on the carrying amount.
Strategic report
Where a derivative is designated as a hedge of the variability in the fair value of an asset or liability it is designated as a fair value hedge. Changes in the fair value of these derivatives are recorded in the income statement at the same time as the related movements in the hedged asset or liability.
(iv) Other
(d) Cash and cash equivalents
Governance
Changes in the fair value of any derivatives which do not qualify for hedge accounting under any of the criteria outlined above are recognised immediately in the income statement. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The fair value of financial instruments that are not traded in an active market is determined using assumptions based on market conditions at the balance sheet date or discounted cash flow techniques.
Cash and short-term deposits included in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less from the original acquisition date. Cash and cash equivalents included in the cash flow statement comprise cash and short-term deposits, net of bank overdrafts.
30.4 Intangible assets Intangible assets assessed as having finite lives are amortised over their estimated useful economic life and are assessed for impairment whenever there is an indication that they are impaired. Amortisation charges are on a straight line basis and recognised in the income statement. Estimated useful lives are as follows: Development costs Intellectual property Patents and licences Other intangibles
(a)
5 years or over the expected period of product sales, if less 3 to 20 years 5 years or over the period of the licence, if less 5 years
Goodwill arising on a business combination Goodwill arising on the acquisition of a subsidiary represents the excess of the aggregate of the fair value of the consideration over the aggregate fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is initially recognised at cost and is subsequently measured at cost less any accumulated impairment losses. Costs related to an acquisition, other than those associated with the issue of debt or equity securities incurred in connection with a business combination, are expensed to the income statement. The carrying value of goodwill is reviewed annually for impairment but more regularly if events or changes in circumstances indicate that it may be impaired. When an impairment loss is recognised it is not reversed in a subsequent accounting period, even if the circumstances which led to the impairment cease to exist.
(b)
Acquired intangible assets Intangible assets that are acquired as a result of a business combination including but not limited to customer relationships, supplier lists, patents and technology and that can be separately measured at fair value on a reliable basis are recorded initially at fair value and amortised over their expected useful life. Amortisation is expensed to the consolidated income statement.
30.5 Property, plant and equipment Property, plant and equipment is stated at cost, less accumulated depreciation and any provision for impairment losses. Refit costs relating to vessels are capitalised when incurred and amortised over their estimated useful economic life of 30 months. UK cost comprises expenditure incurred during construction, delivery and modification. Where a substantial period of time is required to bring an asset into use, attributable finance costs are capitalised and included in the cost of the relevant asset. Depreciation is provided to write-off the cost of property, plant and equipment to their residual value in equal annual instalments over their estimated useful lives, as follows: Freehold property Leasehold improvements Plant and equipment Vessels
40 years 25 years or the period of the lease, if shorter Between 5 and 20 years Between 10 and 25 years
No depreciation is charged on assets under construction. Residual values of vessels are set initially at 20% of purchase cost or fair value at acquisition, which the Directors believe to be an approximation of current residual values. Residual values and estimated remaining lives are reviewed annually by the Directors and adjusted if appropriate to reflect the relevant market conditions and expectations, obsolescence and normal wear and tear.
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Financial statements
Intangible assets excluding goodwill arising on a business combination, are stated at cost or fair value less any provision for impairment.
James Fisher and Sons plc
Notes to the financial statements continued
30
Significant accounting policies continued
30.6 Impairment of tangible and intangible assets At each reporting date the Group assesses whether there are any indications that an asset has been impaired. If any indication exists, an estimate of the recoverable amount of the asset is made which is determined as the higher of its fair value less costs to sell and its value in use. These calculations are determined for an individual asset unless that asset does not generate cash inflows independently from other assets, in which case its value is determined as part of that group of assets. To assess the value in use, estimated future cash flows relating to the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and risks specific to the asset. Where the carrying amount of the asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. Impairment losses are recognised in the income statement.
(a)
Impairment of goodwill Goodwill acquired in a business combination is allocated against the appropriate combination of business units deemed to obtain advantage from the benefits acquired with the goodwill. These are designated as cash generating units (CGU). Impairment is then assessed by comparing the recoverable amount of the relevant CGU with the carrying value of the CGU’s goodwill. Recoverable amount is measured as the higher of the CGU’s fair value less cost to sell and the value in use. Where the recoverable amount of the CGU is less than its carrying amount including goodwill, an impairment loss is recognised in the income statement. An impairment loss for goodwill is not reversed in a subsequent period.
(b)
Impairment of tangible and other intangible assets If any indication of a potential impairment exists, the recoverable amount is estimated to determine the extent of any impairment loss. Assets are grouped together for this purpose at the lowest level for which there are separately identifiable cash flows.
(c)
Research and development costs Research expenditure is expensed in the income statement as incurred. Expenditure on development which represents the application of research to the development of new products or processes is capitalised provided that specific projects are identifiable, technically feasible, and the Group has sufficient resources to complete development. The useful life of projects meeting the criteria for capitalisation is determined on a project by project basis. Capitalised development expenditure is measured at cost and amortised over its expected useful life on a straight line basis. Other development costs are recognised in the income statement as incurred.
If an event occurs after the recognition of an impairment that leads to a decrease in the amount of the impairment loss previously recognised the impairment loss is reversed. The reversal is recognised in the income statement to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.
30.7 Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing each product to its present location and condition. Raw materials, consumables stores and finished goods for sale are stated at purchase cost on a first in first out basis. Work in progress and finished goods are stated at the cost of direct materials and labour plus attributable overheads allocated on a systematic basis based on a normal level of activity. Net realisable value is based on estimated selling price less the estimated costs of completion and sale or disposal.
30.8 Taxation Corporation tax is provided on taxable profits from activities not qualifying for tonnage tax relief and is recognised in the income statement except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Current tax is the expected corporation tax payable or receivable in respect of the taxable profit for the year using tax rates enacted or substantively enacted at the balance sheet date, less any adjustments to tax payable or receivable in respect of previous years. Deferred tax is recognised in respect of all temporary differences between the carrying amounts of assets and liabilities included in the financial statements and the amounts used for tax purposes, that will result in an obligation to pay more, a right to pay less or to receive more tax, with the following exceptions: - No provision is made where a deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction which is not a business combination that at the time of the transaction affect neither accounting nor taxable profit; and - No provision is made for deferred tax that would arise on all taxable temporary differences associated with investments in subsidiaries and interests in joint ventures where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised only to the extent that the Directors consider that it is probable that there will be suitable taxable profits from which the future reversal of the underlying temporary differences and unused tax losses and credits can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which the asset is expected to be realised or liability settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Deferred tax arising on actuarial gains and losses relating to defined benefit pension funds is recorded in other comprehensive income. Where the cash contributions made to the schemes exceed the service costs recognised in the income statement the current tax arising is recorded in other comprehensive income.
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30.9 Leases
Lease payments are apportioned between finance charges and a reduction in the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are expensed to the income statement. Capitalised leased assets are depreciated over the shorter of the lease term and the estimated useful life of the asset. All other leases are classified as operating leases and rentals payable are charged to the income statement on a straight line basis over the lease term.
Strategic report
A lease arrangement under which substantially all the risks and rewards of ownership rest with the lessee are classified as finance leases and capitalised at the inception of the lease at the lower of the fair value of the related item or the present value of the minimum lease payments.
30.10 Pension plans (a)
Defined contribution schemes
(b)
Defined benefit schemes A defined benefit scheme is a pension plan under which the amount of pension benefit that an employee receives on retirement is defined by reference to factors including age, years of service and compensation. The schemes are funded by payments determined by periodic actuarial calculations agreed between the Group and the trustees of trustee-administered funds.
The interest element of the defined benefit charge is determined by applying the discount rate to the net defined benefit liability at the start of the period and is recognised in the income statement. A liability is recognised in the balance sheet which represents the present value of the defined benefit obligations at the balance sheet date, less the fair value of the scheme assets and is calculated separately for each scheme. The defined benefit obligations represent the estimated amount of future benefits that employees have earned in return for their services in current and prior periods, discounted at a rate representing the yield on a high quality corporate bond at the balance sheet date, denominated in the same currency as the obligations, and having the same terms to maturity as the related pension liability, applied to the estimated future cash outflows arising from these obligations. When the calculation results in a benefit to the Group, the recognised asset is limited to the total of any unrecognised past service costs and the present value of economic benefits available from any future refunds from the plan or reductions in future contributions to the plan. When the benefits of a plan are improved, the portion of the increased benefit related to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement. Actuarial gains and losses on experience adjustments and changes in actuarial assumptions are recognised in the statement of other comprehensive income.
30.11 Share based payments Executive savings related share option schemes are operated under which options are granted to employees of the Group. An expense is recognised in the income statement with a corresponding credit to equity in respect of the fair value of employee services rendered in exchange options granted, which is determined by the fair value of the option at the date of grant. The amount is expensed over a specified period until the options can be exercised (the vesting period). The fair value of an option is determined by the use of mathematical modelling techniques, including the Black-Scholes option pricing model and the Binomial model. Non-market vesting conditions (such as profitability and growth targets) are excluded from the fair value calculation but included in assumptions about the number of options that are expected to become exercisable. An estimate is made of the number of options that are expected to become exercisable at each balance sheet date. Any adjustments to the original estimates are recognised in the income statement (and equity) over the remaining vesting period with any element of any adjustments relating to prior periods recognised in the current period. No expense is recognised for awards that do not ultimately vest except for awards where vesting is conditional upon a market condition (such as total shareholder return of the Group relative to an index). These are treated as vested irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. In addition to failure by the employee to exercise an option in accordance with the exercise period allowed by the scheme, an award made to an employee under a share option scheme is deemed to lapse when either the scheme is cancelled by the Company, or when an employee, who continues to qualify for membership of a scheme, ceases to pay contributions to that scheme. In these circumstances the full remaining unexpired cost of the award is expensed in the period in which the option lapses. Where the exercise of options is satisfied by the issue of shares by the Company, the nominal value of any shares issued from the exercise of options is credited to share capital with the balance of the proceeds received, net of transaction costs, credited to share premium.
30.12 Short-term employee benefits The Group recognises a liability and an expense for short-term employee benefits, including bonuses, only when contractually or constructively obliged.
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Financial statements
The cost of providing benefits is determined using the projected unit credit method, which attributes entitlement to benefits to the current period (current service cost) and to current and prior periods (to determine the present value of the defined benefit obligation). Current service costs are recognised in the income statement in the current year. Past service costs are recognised in the income statement immediately. When a settlement (which eliminates all obligations for benefits already accrued) or a curtailment (which reduces future obligations as a result of a reduction in future entitlement) occurs, the obligation and related plan assets are remeasured using current actuarial assumptions and any gain or loss is recognised in the income statement.
Governance
Pre-determined contributions paid to a separate privately administered pension plan are recognised as an expense in the income statement in the period in which they arise. Other than this contribution the Group has no further legal or constructive obligation to make further contributions to the scheme.
James Fisher and Sons plc
Notes to the financial statements continued
30
Significant accounting policies continued
30.13 Share capital and reserves Ordinary shares are classified as equity. Costs attributable to the issue of new shares are deducted from equity from the proceeds.
(a)
Treasury shares Shares issued by the Company which are held by the Company or its subsidiary entities (including the James Fisher Employee Share Trust (ESOT)), are designated as treasury shares. The cost of these shares is deducted from equity. No gains or losses are recognised on the purchase, sale, cancellation or issue of treasury shares. Consideration paid or received is recognised directly in equity.
(b)
Employee Share Ownership Plan (ESOP) Company shares are held in an ESOP. The finance costs and administration costs relating to the ESOP are charged to the income statement. Dividend income arising on own shares is excluded in arriving at profit before taxation and deducted from aggregate dividends paid.
The Group maintains the following reserves:
Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of operations whose financial statements are denominated in foreign currencies as well as from the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary.
Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.
30.14 Revenue recognition Revenue, after excluding trade discounts and value added tax, represents the provision of goods and services by the Group in the normal course of business and is recognised when the significant risks and rewards of ownership have passed to the buyer. The transfer of risks and rewards is assumed to pass to the customer on delivery of the goods or completion of the provision of the relevant services. When the Group acts as a lessor, revenue is recognised in the income statement on a straight-line basis over the period of the hire.
(a)
Construction contracts (i)
General Where the outcome of a construction contract can be estimated reliably, revenue and costs relating to it are recognised in accordance with the stage of completion of the contract, in the period in which the work is performed. To assess a construction contract at the outset, total contract costs are established by using supplier quotes for third party costs, internal hours based on experience, the nature of the project and the time taken for similar projects in the past, to which current labour rates are applied. The stage of completion is assessed by reference to physical progress, attributable man hours and costs incurred measured against the expected outcome based on the most appropriate method for the specific type of contract. Construction contract costs are monitored on a monthly basis and total expected costs (incurred costs to date and expected costs to complete) are reviewed against the original cost budget. Progress made is reviewed to assess whether the long-term project is progressing in accordance with the planned level of completion on a regular basis. Any cost overruns resulting in an expected total cost in excess of original budget results in a reduced margin being accounted for on the revenue recognised to date. Revenue from the contract is under the percentage of completion method by reference to the assessed stage of completion of the contract. Pre-determined ratios or percentages are not used in the estimation process. In determining whether the outcome of a construction contract can be assessed reliably, the Group considers the nature of each contract, the experience of the project manager with this type of contract, whether it is similar to contracts delivered in the past, the customer, the time period over which the contract runs and forms a view of the likely risk in estimating the project outcome. Contract costs incurred that relate to future activity are deferred and recognised as inventory. When a loss is expected to be incurred on a construction contract it is recognised as an expense immediately in the income statement. When the outcome of a construction contract cannot be estimated reliably no profit is recognised. Revenue is recognised to the extent that it is probable that costs incurred will be recovered.
(ii)
Bid costs All bid costs incurred relating to contracts for the design, manufacture or operation of assets or the provision of services to third parties are expensed to the income statement as incurred, except for those costs incurred after the point at which the contract award is virtually certain. Directly attributable costs incurred subsequent to this point are included within contract costs and amortised over the life of the initial period of the contract to which they relate.
(b)
Warranty costs Provision is made for warranties offered with products where it is probable that an obligation to transfer economic benefits to the customer in future will arise. This provision is based on management’s assessment of the previous history of claims and probability of future obligations arising on a product by product basis. Provisions for warranty costs included in the balance sheet at 31 December 2015 were £0.6m (31 December 2014: £1.8m).
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Annual Report and Accounts 2015
30.15 Non-current assets held for sale
30.16 Intra Group financial instruments Where the Company enters into financial guarantee contracts to guarantee the indebtness of other companies within the Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.
Strategic report
On classification as held for sale, non-current assets are recognised at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are included in profit or loss, as are any gains and losses on subsequent re-measurement.
31 Significant accounting judgements and estimates Financial and business risks
Pensions The Group primarily provides pensions to its employees through defined contribution schemes but also has defined benefit obligations. The valuation of these defined benefit schemes is subject to a high degree of volatility arising from their exposure to changes in bond yields and equity values, and sensitivity to changes in actuarial assumptions, such as to life expectancy. This makes it difficult to predict future potential liabilities with any certainty. Certain defined benefit obligations relate to industry-wide schemes which are funded by current and former employers to the shipping industry. The risk of corporate failure of any of the participants could lead to an increase in the Group’s share of liability.
Governance
The Group’s activities expose it to a variety of financial and business risks. Where possible the Group seeks to minimise these risks through its risk management policies.
Impairment of goodwill and other assets
Contingent consideration Contingent consideration arises on acquisitions and is usually related to the achievement of financial performance targets relating to profits over an agreed period. The outcome of these arrangements depends on a number of factors outside the control of the business including, but not limited to, competition, general economic conditions and the availability of resources within the business to meet its obligations to its customers. The Group regularly assesses the likelihood of the targets being achieved during the performance period and makes appropriate adjustments to the provision for contingent consideration through the income statement.
Revenue Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer, the amount of revenue can be measured reliably and recovery of the consideration is probable. The timing of the transfer of risks and rewards will vary depending on the terms of the sales agreement, the evaluation of the specific risks associated with the performance of the contract (for example design, construction and testing) or generally accepted practice where there are no specific arrangements in the contract.
Income taxes The Group is subject to income taxes in several jurisdictions. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax risk issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provisions in the period in which such determination is made. The Group has entered the UK tonnage tax regime under which tax on its ship owning and operating activities is based on the net tonnage of vessels operated. Income and profits outside this regime are taxed under normal tax rules. This means that it is necessary to make estimates of the allocation of some income and expenses between tonnage and non tonnage tax activities. These estimates are subject to agreement with the relevant tax authorities and may be revised in future periods.
Annual Report and Accounts 2015
95
Financial statements
The Group tests annually whether goodwill has suffered any permanent impairment in accordance with the accounting policy in note 12. The Group reviews the carrying value of all assets for indications of impairment at each balance sheet date. If indicators of impairment exist the carrying value of the asset is subject to further testing to determine whether its carrying value exceeds its recoverable amount. The recoverable amount represents the higher of the asset’s fair value less costs to sell and its value in use, which is determined by measuring the discounted cash flows arising from the asset.
James Fisher and Sons plc
Group financial record for the five years ended 31 December
Revenue Marine Support Offshore Oil Specialist Technical Tankships
2015 £000
2014 £000
2013 £000
2012 £000
2011 £000
192,978 62,956 129,443 52,553
164,150 104,880 121,461 54,308
171,267 99,190 81,898 61,312
157,387 83,359 60,678 61,824
117,252 71,211 52,356 66,805
437,930
444,799
413,667
363,248
307,624
Underlying operating profit Marine Support Offshore Oil Specialist Technical Tankships Common costs
19,352 7,399 13,907 7,164 (2,232)
14,150 22,426 13,338 4,711 (3,088)
18,262 19,690 7,755 3,989 (3,059)
19,341 17,131 5,473 2,405 (3,201)
18,380 12,783 6,902 1,145 (3,077)
Net finance costs Underlying profit before taxation Separately disclosed items
45,590 (4,343) 41,247 4,967
51,537 (4,684) 46,853 2,381
46,637 (5,289) 41,348 4,875
41,149 (6,160) 34,989 11,388
36,133 (6,128) 30,005 (254)
Profit before taxation Taxation Profit after taxation
46,214 (5,507) 40,707
49,234 (8,751) 40,483
46,223 (7,475) 38,748
46,377 (6,312) 40,065
29,751 (5,634) 24,117
Intangible assets Property, plant and equipment Investment in associates and joint ventures Working capital Contingent consideration Pension obligations Taxation
156,455 127,594 7,728 68,082 (14,465) (26,956) (4,154)
127,130 116,629 10,625 49,518 (9,086) (21,806) (6,486)
113,658 108,202 10,845 44,831 (12,082) (23,141) (4,228)
92,633 103,484 13,761 49,059 (27,061) (4,838)
93,188 103,898 13,904 52,824 (30,133) (3,209)
Capital employed
314,284
266,524
238,085
227,038
230,472
Net borrowings Equity
93,889 220,395
62,334 204,190
54,278 183,807
63,122 163,916
98,793 131,679
314,284
266,524
238,085
227,038
230,472
pence
pence
pence
pence
pence
79.7 79.2 69.0 68.5 23.8
80.2 79.2 74.9 74.0 22.0
76.6 75.7 66.3 65.6 20.0
79.1 78.5 55.6 55.1 17.7
48.4 48.0 48.8 48.4 16.1
10.4% 13.5% 43.0% 2.9
11.6% 16.5% 30.7% 3.4
11.3% 16.9% 29.6% 3.3
11.3% 15.3% 38.6% 3.1
11.7% 13.0% 74.9% 3.0
Earnings per share Basic Diluted Underlying basic Underlying diluted Dividends declared per share Other key performance indicators Operating margin (%) Return on capital employed (post tax) (%) Net Gearing (%) Dividend cover (underlying earnings) (times)
96
Annual Report and Accounts 2015
James Fisher and Sons plc
Subsidiaries and associated undertakings
Subsidiary undertakings Country of Group incorporation percentage of or registration equity capital
Marine Support Clariden Holdings SA
Liberia
100%
JCM Scotload Ltd
UK
100%
FCEA Ltd
BVI
80%**
Load Test Sdn Bhd
Malaysia
100%
FCN Limited
BVI
100%
Maritime Engineers (Asia Pacific) Pte Ltd
Singapore
100%
Fender Care (Changshu) Ltd
China
100%
Maritime Engineers Pty Ltd
Australia
100% 100%
USA
100%
Mojo Maritime Limited
UK
Fender Care do Brasil Comercio E Servicos Navais LTDA
Brazil
100%
Mojo Maritime SAS
France
100%
Fender Care Limited
UK
100%
Mojo Ocean Dynamics Limited
UK
100%
Fender Care Marine (Asia Pacific) Pte Ltd
Singapore
100%
Namibia Subtech Diving and Marine (Pty) Ltd
Namibia
100%
Fender Care Marine (Gibraltar) Limited
Gibraltar
100%
Osiris Marine Services Limited
UK
100% 100%
UK
100%
Osiris Underwater Engineering Services Limited
UK
Fender Care Marine Products (Asia Pacific) Pte Ltd
Singapore
100%
Prolec Limited
UK
100%
Fender Care Marine Services Group Limited
UK
100%
Scotload Ltd
UK
100%
Fender Care Marine Sohar LLC
Oman
70%
Strainstall Engineering Services Limited
UK
100%
Fender Care Marine Solutions Limited
UK
100%
Strainstall Group Limited
UK
100%*
Fender Care Nigeria Limited
Nigeria
100%
Strainstall Malaysia Sdn Bhd
Malaysia
100%
Fender Care Norway AS
Norway
100%
Strainstall Middle East Limited
Cayman Islands
100%
Fendercare Australia Pty Ltd
Australia
100%
Strainstall Singapore Pte Ltd
Singapore
100%
Fendercare Marine Ghana Limited
Ghana
51%
Strainstall UK Limited
UK
100%
Fendercare Marine West Limited
Cayman Islands
100%
Subtech (Pty) Ltd
South Africa
100%
Fendercare Services Marinhos do Brasil LTDA
Brazil
100%
Subtech (Pty) Ltd – Mozambique branch
Mozambique
100%
Ground Handling Services Inc
USA
100%
Subtech Diving & Marine Tanzania Limited
Tanzania
100%
Imogen Marine Company
Marshall Islands
100%
Subtech Group Holdings (Pty) Ltd
South Africa
100%
Inastros Navigation Company
Marshall Islands
100%
Subtech Marine (Pty) Ltd
Namibia
70%
Integrated Mooring Solutions Limited
UK
100%
Subtech Norte Lda
Mozambique
100%
James Fisher Fender Care Limited
UK
100%*
Subtech Offshore (GB II) Mauritius
Mauritius
100%
James Fisher Marine Services Limited
UK
100%*
Subtech South Africa (Pty) Ltd
South Africa
100%
James Fisher MFE Limited
UK
100%
Testconsult Harlow Limited
UK
100%
James Fisher MIMIC Limited
UK
100%*
Testconsult Ireland Limited
Ireland
100%
James Fisher Servicos Empresariais Ltda
Brazil
100%
Testconsult Limited
UK
100%
James Fisher Subsea Limited
UK
100%
Vision Marine Ltd
Liberia
100%
Financial statements
Fender Care Marine Ltd
Governance
Fender Care Americas Inc
Offshore Oil Buchan Technical Services Limited
UK
100%*
Pump Tools Limited
UK
100%
James Fisher Air Supply Norway Limited
UK
100%
RMSPumptools FZE
Dubai
100%
James Fisher and Sons (Seafloor Dynamex) Limited
UK
100%*
RMSPumptools Limited
UK
100%
James Fisher Eiendom AS
Norway
100%
Scan Tech AS
Norway
100%
James Fisher Marine Services Malaysia Ltd
Malaysia
100%
Scan Tech Produkt Personell AS (GMC)
Norway
100%
James Fisher Marine Services Middle East Limited FZCO
Dubai
100%
Scantech Offshore do Brasil Comercio E Servicos Ltda
Brazil
100%
James Fisher Norway AS
Norway
100%*
Scantech Offshore Limited
UK
100%*
James Fisher Offshore Limited
UK
100%*
Scantech Offshore Pty Ltd
Australia
100%
James Fisher Offshore Malaysia Sdn Bhd
Malaysia
100%
Scantech Offshore UK Limited
UK
100%
James Fisher Offshore PTE Ltd
Singapore
100%
ScanTech Personell AS
Norway
100%
James Fisher Subsea Excavation Incorporated
USA
100%
Solmead Limited
UK
70%
James Fisher Subsea Excavation Mexico SA de CV
Mexico
100%
Strata Oil Tools Limited
UK
100%
James Fisher Subsea Excavation Pte. Limited
Singapore
100%
Solvapli Limited
UK
51%
Monyana Engineering Services Limited
UK
100%
Annual Report and Accounts 2015
Strategic report
Name of company
Country of Group incorporation percentage of or registration equity capital Name of company
97
James Fisher and Sons plc
Subsidiaries and associated undertakings continued
Name of company
Country of Group incorporation percentage of or registration equity capital Name of company
Country of Group incorporation percentage of or registration equity capital
Specialist Technical Divex (Proprietary) Limited
South Africa
100%
James Fisher Defence Sweden AB
Sweden
100%
Divex Asia Pacific Pty Ltd
Australia
100%
James Fisher Inspection and Measurement Services Limited
UK
100%
Divex FZE
UAE
100%
James Fisher Nuclear Limited
UK
100%
Harsh Environment Systems Limited
UK
100%
James Fisher Rumic Limited
UK
100%*
Hatch Holdings Limited
UK
100%
James Fisher Singapore Pte Ltd
Singapore
100%
High Technology Sources Limited
UK
100%
James Fisher Technologies LLC
USA
51%
Hyperco Holdings Limited
UK
100%
JF Nuclear Limited
UK
100%
Inspection Holdings Limited
UK
100%
JFD Limited
UK
100%
Integrated Safety Management Limited
UK
100%
National Hyperbaric Centre PTE Ltd
Singapore
100%
James Fisher (Ro-Ro) Limited
UK
100%*
NDT (Inspection & Testing) Limited
UK
100%
James Fisher Australia Pty Ltd
Australia
100%
Raygen Limited
UK
100%
James Fisher Defence Italy SRL
Italy
100%
Remac Limited
UK
100%
James Fisher Defence Limited
UK
100%
The National Hyperbaric Centre Limited
UK
100%
James Fisher Defence North America Limited
USA
100%
Tankships Cattedown Wharves Limited
UK
100%
James Fisher (Shipping Services) Limited
UK
100%*
Everard (Guernsey) Ltd
Guernsey
100%
James Fisher Everard Limited
UK
100%
F.T. Everard Shipping Limited
UK
100%
James Fisher Tankships Holdings Limited
UK
100%*
F.T.Everard & Sons Limited
UK
100%*
Onesimus Dorey Ltd
Guernsey
100%*
James Fisher (Crewing Services) Limited
UK
100%*
Scottish Navigation Company Limited
UK
100%
James Fisher (Guernsey) Limited
Guernsey
100%
James Fisher (New Zealand) Limited
New Zealand
100%*
James Fisher (Aberdeen) Limited
UK
100%*
JF Australia Holding Pty Ltd
Australia
100%
James Fisher Holdings UK Limited
UK
100%*
JF Nordvik Limited
Jersey
100%*
James Fisher Nuclear Holdings Limited
UK
100%*
JF Overseas Limited
UK
100%*
James Fisher Properties Limited
UK
100%*
JF (Southern Africa) Ltd
UK
100%*
Holding Companies
Associated undertakings and significant holdings in undertakings other than subsidiary undertakings Marine Support Active Load Limited
UK
20%
Fendercare Marine Omega India Private Limited
India
50%
Asteria Navigation Inc
Liberia
45%
James Fisher Angola Limitada
Angola
49%
Eurotestconsult Limited
Ireland
50%
James Fisher Angola UK Limited
UK
50%
Eurotestconsult UK Limited
UK
50%
Lome Offshore Services Inc
Marshall Islands
45%
Fender Care Benelux B.V.
Netherlands
50%
Offshore Lightering Services Ltd
Marshall Islands
45%
Fender Care Marine (Malaysia) SDN BHD
Malaysia
49%
Silvertide Navigation Inc
Liberia
45%
Fender Care Marine LLC
Fujariah
49%**
Strainstall Laboratories WLL
Qatar
49%**
Fender Care Marine Omega Middle East FZC
UAE
50%
Strainstall Middle East LLC
Dubai
49%**
Fender Care Marine Services LLC
Abu Dhabi
49%**
Strainstall Saudi Arabia Limited
Saudi Arabia
49%**
Fender Care Middle East LLC
Sharjah
49%**
Strainstall Testing Lab L.L.C
Abu Dhabi
49%**
Fender Care Viking SDN BHD
Malaysia
30%
Work Boat Services Inc
Marshall Islands
45%
Fendercare Marine Agency Pte.Ltd
Indonesia
50%
Germany
50%
First Response Marine Pte Ltd
Singapore
50%
Specialist Technical Divex Domeyer GmbH
* held by the Parent Company (all other subsidiaries are held by an intermediate subsidiary) ** consolidated as subsidiary undertakings
98
Annual Report and Accounts 2015
James Fisher and Sons plc
Notice of Annual General Meeting
Ordinary Business Resolution 1 To receive the Annual Accounts and the reports of the Directors’ and the auditor thereon for the year ended 31 December 2015.
Strategic report
Notice is hereby given that the Annual General Meeting (AGM) of James Fisher and Sons plc will be held at the Abbey House Hotel, Abbey Road, Barrow-in-Furness, LA13 0PA on Thursday 28 April 2016 at 11.00am to consider and, if thought fit, to pass Resolutions 1 to 13 inclusive as ordinary resolutions and Resolutions 14 to 16 as special resolutions.
Resolution 2 Governance
To approve the Annual statement by the chairman of the Remuneration Committee and the Annual report on remuneration for the year ended 31 December 2015 as set out on page 33 and on pages 39 to 45 (inclusive) in the Annual Report and Accounts.
Resolution 3 To declare a final dividend for the year ended 31 December 2015 of 16.0p per ordinary share.
Resolution 4 To re-elect Mr C J Rice as a Director of the Company. Financial statements
Resolution 5 To re-elect Mr N P Henry as a Director of the Company.
Resolution 6 To re-elect Mr S C Kilpatrick as a Director of the Company.
Resolution 7 To re-elect Mr M S Paul as a Director of the Company.
Resolution 8 To re-elect Ms A I Comiskey as a Director of the Company.
Resolution 9 To re-elect Mr D G Moorhouse as a Director of the Company.
Resolution 10 To re-elect Mr M J L Salter as a Director of the Company.
Resolution 11 To re-appoint KPMG LLP as auditor of the Company to hold office until the conclusion of the next AGM of the Company.
Resolution 12 To authorise the Audit Committee to determine the auditor’s remuneration.
Special Business Resolution 13 That the Directors of the Company be and are hereby generally and unconditionally authorised for the purposes of section 551 of the Companies Act 2006 (the Act) to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, and convert any security into, shares in the Company (Rights) up to an aggregate nominal amount of £4,180,344 provided that this authority shall expire on the date of the next AGM of the Company or, if earlier, on 30 June 2017, save that the Company shall be entitled to make offers or agreements before the expiry of such authority which would or might require shares to be allotted or Rights to be granted after such expiry and the Directors shall be entitled to allot shares and grant Rights pursuant to any such offer or agreement as if this authority had not expired; and, that
Annual Report and Accounts 2015
99
James Fisher and Sons plc
Notice of Annual General Meeting continued
all authorities previously granted to the Directors to allot shares and grant Rights that remain unexercised at the commencement of this meeting be and are hereby revoked.
Resolution 14 Special Resolution That subject to the passing of Resolution 13, the Directors be and are hereby given power to allot equity securities (as defined in section 560 of the Act) of the Company for cash either pursuant to the authority conferred by Resolution 13 and/or where the allotment is treated as an allotment of equity securities under section 560(2)(b) of the Act, in either case as if section 561(1) of the Act did not apply to such allotment provided that this power shall be limited to: (a)
the allotment of equity securities in connection with an offer of securities in favour of the holders of ordinary shares on the register of members at such record date as the Directors may determine and other persons entitled to participate therein where the equity securities respectively attributable to the interests of the ordinary shareholders are proportionate (as nearly as may be practicable) to the respective numbers of ordinary shares held or deemed to be held by them on any such record date, subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with treasury shares, fractional entitlements or legal or practical problems arising under the laws of any overseas territory or the requirements of any regulatory body or stock exchange or by virtue of shares being represented by depositary receipts or any other matter; and
(b)
the allotment (otherwise than pursuant to sub-paragraph (a) above) to any person or persons of equity securities up to an aggregate nominal amount of £627,052;
and shall expire upon the expiry of the general authority conferred by Resolution 13 above, save that the Company shall be entitled to make offers or agreements before the expiry of such power which would or might require equity securities to be allotted after such expiry and the Directors shall be entitled to allot equity securities pursuant to any such offer or agreement as if the power conferred hereby had not expired.
Resolution 15 Special Resolution The Company be and is hereby generally and unconditionally authorised for the purposes of section 701 of the Act to make one or more market purchases (within the meaning of section 693(4) of the Act) on the London Stock Exchange of up to a maximum aggregate of 2,508,207 ordinary shares of 25p each in the capital of the Company at a price per share (exclusive of expenses) of not less than 25p and not more than 105% of the average of the middle market quotations for such ordinary share as derived from the London Stock Exchange Official List, for the five business days immediately preceding the day of purchase; unless previously renewed, revoked or varied, such authority will expire at the close of the next AGM of the Company, or, if earlier, on 30 June 2017 save that the Company may purchase ordinary shares at any later date where such purchase is pursuant to any contract or contracts made by the Company before the expiry of this authority.
Resolution 16 Special Resolution That any general meeting (other than an AGM) may be called by not less than 14 days’ clear notice.
By order of the Board Michael Hoggan Company Secretary 1 March 2016 Registered office: Fisher House, PO Box 4, Barrow-in-Furness, Cumbria, LA14 1HR Registered in England number: 211475
100
Annual Report and Accounts 2015
Notes
Any member entitled to vote at the above meeting may appoint one or more proxies to attend, speak and vote on a show of hands or on a poll, instead of him. A proxy need not be a member of the Company but must attend the meeting in order to represent a member. A proxy could be the Chairman, another Director of the Company or (if you wish the proxy to speak on your behalf) another person who has agreed to attend and represent a member. Details of how to appoint the Chairman or another person as a proxy using the proxy form are set out in the notes to the proxy form. A member can appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attaching to different shares held by him. Completion of the proxy form will not preclude a member from attending and voting in person, in which case that member’s proxy appointment will automatically be terminated. Proxy forms, duly executed (including any authority under which it is executed or a copy of the authority certified notarially), should be returned to Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. Alternatively you may submit your proxy form online by accessing the shareholder portal at www.capitashareportal.com, logging in and selecting the “proxy voting” link. If you have not previously registered for electronic communications, you will first be asked to register as a new user, for which you will require your investor code (which can be found on your proxy card, share certificate or dividend tax voucher), family name and post code (if resident in the UK). In each case your proxy instruction must be received no later than 11.00am on 26 April 2016. If you are a CREST member, see note 4 below. The deadline for receipt of proxy appointments also applies in relation to amended instructions, and any attempt to amend a proxy appointment after the relevant deadline will be disregarded. Where two or more valid proxy appointments are received in respect of the same share in respect of the same meeting, the one which is last sent shall be treated as replacing and revoking the other or others.
3.
The right to appoint a proxy cannot be exercised by persons who have been nominated by a member to enjoy information rights under section 146 of the Companies Act 2006 (Nominated Person): they can only be exercised by the member. However, a Nominated Person may have a right under an agreement between him and the member by whom he was nominated to be appointed as a proxy for the meeting or to have someone else so appointed. If a Nominated Person does not have such a right or does not wish to exercise it, he may have a right under such an agreement to give instructions to the member as to the exercise of voting rights. Nominated persons should contact the registered member by whom they were nominated in respect of these arrangements.
4.
CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so by utilising the procedures described in the CREST Manual (available via www.euroclear.com/CREST). CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a CREST Proxy Instruction) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (EUI) specifications and must contain the information required for such instructions, as described in the CREST Manual. The message regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID number – RA10) by the latest time(s) for receipt of proxy appointments specified in the notice of meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
5.
Voting by corporate representatives. A member of the Company which is a corporation may authorise a person or persons to act as its representative(s) at the AGM. In accordance with the provisions of the Companies Act 2006, each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual member of the Company, provided that they do not do so in relation to the same shares. Representatives of shareholders that are corporations will have to produce evidence of their proper appointment when attending the general meeting. Please contact our Registrar if you need any further guidance on this.
6.
Copies of the Directors’ service contracts, the letters of appointment of the Non-Executive Directors, together with a copy of the Company’s Articles of Association will be available for inspection at the Company’s registered office during normal business hours on any weekday (Saturdays, Sundays and English public holidays excepted) until the close of the AGM and are available for inspection at the place of the AGM from 10.30am on the date of the meeting until the close of the meeting.
Annual Report and Accounts 2015
101
Financial statements
2.
Governance
Any member who has not elected to receive the Annual Report and Accounts for 2015 may obtain copies by writing to the Company Secretary, Fisher House, PO Box 4, Barrow-in-Furness, Cumbria, LA14 1HR. Members who wish to receive the printed Annual Report and Accounts, free of charge, in future years should write to the Company’s Registrars, FREEPOST CAPITA SAS. Please note that delivery using this service can take up to 5 business days.
Strategic report
1.
James Fisher and Sons plc
Notice of Annual General Meeting continued
7.
Audit statements. Members satisfying the thresholds in section 527 of the Companies Act 2006 can require the Company to publish a statement on its website setting out any matter relating to the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the meeting, that the members propose to raise at the meeting. The Company cannot require the members requesting the publication to pay its expenses. Any statement placed on the website must also be sent to the Company’s auditor no later than the time it makes its statement available on the website. The business which may be dealt with at the meeting includes any statement that the Company has been required to publish on its website.
8.
Members’ questions. The Company must cause to be answered at the meeting any question relating to the business being dealt with at the meeting which is put by a member attending the meeting, except where: (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information; (b) the answer has already been given on a website in the form of an answer to a question; or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
9.
A copy of this notice, and other information required by section 311A of the Act, can be found at www.jamesfisher.com. A member may not use any electronic address provided by the Company in this document or with any proxy appointment form or in any website for communication with the Company for any purpose in relation to the meeting other than as expressly stated in it.
10. Only persons entered on the register of members of the Company at 6.00pm on 26 April 2016 (or, if the meeting is adjourned, at 6.00pm on the date which is two days prior to the adjourned meeting) shall be entitled to attend and vote at the meeting or adjourned meeting. Changes to entries on the register after this time shall be disregarded in determining the rights of persons to attend or vote (and the number of votes they may cast) at the meeting or adjourned meeting. 11. As at 1 March 2016 (being the latest practical date before the publication of this Notice), the Company’s issued share capital consists of 50,164,133 ordinary shares, carrying one vote each, and 100,000 preference shares carrying one vote each. Therefore the total voting rights in the Company are 50,264,133. There are no shares in treasury. 12. As soon as practicable following the AGM, the results of the voting at the meeting and the number of votes cast for and against and the number of votes withheld in respect of each resolution will be announced via a Regulatory Information Service and also placed on the Company’s website at www.james-fisher.com.
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Ordinary Business Explanatory Notes
The Companies Act 2006 requires the Directors of a public company to lay its Annual Report before the Company in general meeting, giving shareholders the opportunity to ask questions on the contents. The Annual Report comprises the accounts, the auditor’s report, the Directors’ report, the Directors’ remuneration report and the Strategic report. The Company proposes, as an ordinary resolution, a resolution on its Annual Report in accordance with the UK Corporate Governance Code (Code).
Strategic report
Resolution 1 – Annual Report
Resolution 2 – Approval of the Annual statement by the chairman of the Remuneration Committee and the Annual report on remuneration Governance
The Company proposes an ordinary resolution to approve the Annual Statement by the chairman of the Remuneration Committee and the Annual report on remuneration for the financial year ended 31 December 2015. The Annual statement and the Annual report on remuneration are set out on page 33 and on pages 39 to 45 of the Annual Report. The vote on this resolution is advisory only and the Directors’ entitlement to remuneration is not conditional on its being passed. The Company’s auditor, KPMG LLP, has audited those parts of the Directors’ remuneration report that are required to be audited. In accordance with section 439A of the Companies Act 2006 (CA 2006), a separate resolution on the remuneration policy (Policy) part of the Directors’ remuneration report must be approved by shareholders at least every three years, unless during that time it is to be changed. The current Policy was approved by shareholders at the 2015 AGM and the Directors do not propose any changes to the Policy this year. The Policy is therefore not required to be approved at this year’s AGM.
A final dividend can only be paid after it has been approved by the shareholders in general meeting and may not exceed the amount recommended by the Board. The Directors recommend a final dividend of 16.0p per ordinary share in respect of the financial year ended 31 December 2015. If the meeting approves Resolution 3, the final dividend will be paid on 6 May 2016 to ordinary shareholders who are on the register at the close of business on 8 April 2016. It is proposed to pay the dividend.
Resolutions 4 to 10 – Re-election and election of Directors The Company’s Articles of Association require that one third of the Directors will retire each year and that each Director must stand for re-election at least every three years. However, in accordance with the provision of the Code all Directors will retire from office and offer themselves for re-election at the AGM. Following performance reviews the Chairman and the Board believe that each of the Directors standing for re-election continue to perform effectively and with commitment to their role including commitment of time for Board and Committee meetings and other duties. The Board also considers that each of the Non-Executive Directors is independent in character and judgement. Each of Resolutions 4 to 10 shall be proposed as ordinary resolutions. Biographical details of each of our Directors appear on page 24 of the Annual Report.
Resolutions 11 and 12 – Re-appointment of auditor/auditor’s remuneration The Company is required to appoint an auditor at each general meeting at which accounts are laid before the Company, to hold office until the conclusion of the next such meeting. These resolutions propose the re-appointment of KPMG LLP as the Company’s auditor to hold office from the conclusion of the AGM until the conclusion of the next general meeting at which accounts are laid before the Company, and authorises the Audit Committee to agree the auditor’s remuneration.
Special Business Explanatory Notes Resolution 13 – Authority to allot shares Authority is given to the Directors to allot shares in the Company and to grant rights to subscribe for, and convert any security into shares in the Company up to a total nominal amount of £4,180,344 (16,721,376 ordinary shares) representing approximately 33% of the nominal value of the Company’s total issued ordinary share capital as at 1 March 2016 being the latest practical date before publication of this Notice. The authority will expire at the conclusion of the AGM to be held in 2017, or, if earlier, on 30 June 2017 and replaces an authority granted on 30 April 2015 which expires at the conclusion of the forthcoming AGM. The Directors have no present intention to exercise this authority. At 1 March 2016 the Company does not hold any treasury shares.
Annual Report and Accounts 2015
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Financial statements
Resolution 3 – Declaration of final dividend
James Fisher and Sons plc
Notice of Annual General Meeting continued
Resolution 14 – Permission to allot a limited number of shares other than to existing shareholders This resolution which will be proposed as a special resolution, seeks to renew the authority conferred on the Directors at last year’s AGM to issue equity securities of the Company for cash without first offering them to existing shareholders in proportion to their existing shareholdings. Other than in connection with a rights or other similar issue or scrip dividend (where difficulties arise in offering shares to certain overseas shareholders and in relation to fractional entitlements) the authority contained in this resolution will be limited to an aggregate nominal value of £627,052 (representing 2,508,207 ordinary shares) which represents approximately 5% of the Company’s issued equity share capital as at 1 March 2016, being the latest practicable date prior to the publication of this notice. The renewed authority will remain in force until the AGM to be held in 2017, or on 30 June 2017, whichever is the earlier and replaces the authority granted on 30 April 2015 which expires at the conclusion of the forthcoming AGM. It is a standard resolution for most UK listed companies each year. In line with best practice, the Company has not issued more than 7.5% of its issued share capital on a non-pro rata basis over the last three years and the Directors confirm their intention to follow the best practice set out in the Pre-Emption Group’s Statement of Principles which provides that companies should not issues shares for cash representing more than 7.5% of the Company’s issued share capital in any rolling three-year period, other than to existing shareholders, without prior consultation with shareholders. The Directors have no present intention to exercise this authority.
Resolution 15 – Authority to purchase own shares This special resolution, gives the Company authority to purchase in the market up to 2,508,207 of its ordinary shares of 25p each (representing approximately 5% of the Company’s total issued ordinary share capital). The minimum and maximum prices at which such shares can be purchased is as stated in the resolution. The authority will expire at the conclusion of the AGM to be held in 2017, or on 30 June 2017, whichever is earlier, and replaces a similar authority granted on 30 April 2015 which expires at the conclusion of the forthcoming AGM. If any ordinary shares purchased pursuant to this authority are not held by the Company as treasury shares then such shares would be immediately cancelled in which event the number of ordinary shares in issue would be reduced. As at 1 March 2016, being the latest practical date before publication of this Notice, there were options over ordinary shares in the capital of the Company representing 2.21% of the Company’s total issued share capital. If the authority to purchase the Company’s ordinary shares was exercised in full and those shares were subsequently cancelled, these options would represent 2.32% of the Company’s total issued share capital. The Directors have no present intention to exercise this authority and in reaching their decision to purchase ordinary shares will take into account, amongst other things, the Company’s cash resources and capital requirements, the effect of any purchase on earnings per share and whether it is in the best interests of shareholders generally.
Resolution 16 – Authority to hold general meetings (other than an AGM) on 14 clear days’ notice. This special resolution renews an authority given at last year’s AGM and is required as a result of section 307A of the 2006 Act. The Company is currently able to call general meetings (other than an AGM) on 14 clear days’ notice. In order to be able to preserve this ability, shareholders must have approved the calling of meetings on 14 days’ notice. Resolution 16, which is proposed as a special resolution, seeks such approval. The approval will be effective until the Company’s next AGM, when it is intended that a similar resolution will be proposed. The shorter notice period would not be used as a matter of routine for general meetings, but only where the flexibility is merited by the business of the meeting and is thought to be to the advantage of shareholders as a whole.
Recommendation The Directors consider that the proposed resolutions set out in the Notice of AGM are in the best interests of the Company and its shareholders as a whole and they unanimously recommend that you vote in favour of them, as the Directors intend to do in respect of their own holdings of shares in the Company.
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James Fisher and Sons plc
Investor information
Registered Office and Advisers Company Secretary and registered office M J Hoggan James Fisher and Sons plc Fisher House, PO Box 4 Barrow-in-Furness Cumbria LA14 1HR Registered no. 211475 Registrar Capita Asset Services 34 Beckenham Road Beckenham Kent BR3 4TU Auditor KPMG LLP 1 St Peters Square Manchester M2 3AE Bankers Barclays Bank PLC Barclays Commercial Bank 1st Floor 3 Hardman Street Spinningfields Manchester M3 3HF DBS Bank Ltd London Branch 4th Floor Paternoster House 65 St Paul’s Churchyard London EC4M 8AB
Handelsbanken First Floor East Bridge Mills Stramongate Kendal LA9 4UB HSBC Bank plc 2nd Floor 4 Hardman Square Spinningfields Manchester M3 3EB Lloyds Bank plc 8th Floor 40 Spring Gardens Manchester M2 1EN
Financial Calendar 7 April 2016 Ex dividend date for 2015 final dividend
8 April 2016 Record date
28 April 2016 Annual General Meeting
6 May 2016 Payment of 2015 final dividend
August 2016 Announcement of 2016 interim results
Merchant bankers E C Hambro Rabben and Partners Ltd 32-33 St James’s Place London SW1A 1NR Brokers Investec Bank (UK) Limited 2 Gresham Street London EC2V 7QP N+1 Singer Earl Grey House 75-85 Grey Street Newcastle-upon-Tyne NE1 6EF
Disclaimer This Annual Report has been prepared for the members of the Company only. The Company, its Directors, employees and agents do not accept or assume responsibility to any other person in connection with this document and any such responsibility or liability is expressly disclaimed. This Annual Report contains certain forward-looking statements that are subject to future matters including, amongst other matters, the economic and business circumstances occurring from time to time in the countries and markets in which the Group operates and the availability of financing to the Group. As such the forward-looking statements involve risk and uncertainty. Accordingly, whilst it is believed the expectations reflected in these statements are reasonable at the date of publication of this Annual Report they may be affected by a wide range of matters which could cause actual results to differ materially from those anticipated. The forward-looking statements will not be updated during the year. Nothing in this Annual Report should be construed as a profit forecast.
Annual Report and Accounts 2015
Fisher House PO Box 4 Barrow-in-Furness Cumbria LA14 1HR T: 01229 615 400 F: 01229 836 761 E: enquiries@james-fisher.com
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